I attended two cattle industry meetings in recent weeks. As happens at these get togethers, there was a great deal of catching up with old friends – how’s the weather, how are your grand kids, what about that winter last year, what’s this one going to turn out to be, what about those calf prices, how long will this market last, how are you feeling?
A common theme repeated from past meetings is the need to get more young people involved in these necessary gatherings, and indeed have incentives that make them want to come back to the ranch and help keep it for the next generation after them. Today we live in a different environment than the one in which I was raised, and I suspect this is an opinion shared by many of the readers of this publication.
There are hurdles that must be overcome to ensure the sustainability of livestock ranching for generations to come. One major impediment is the tax system in our country and specifically, the Estate Tax or as it is known colloquially, “death tax.” I read an article years ago which concluded the tax adds less than one percent to the nation’s general fund receipts. My guess is this is still a valid statistic.
Currently the tax is assessed upon the death of an owner of property at a rate of forty percent of the value of that property on the date of the owner’s death. An exemption from this assessment is it will only apply to property valued more than thirteen million dollars for a single taxpayer or a married couple for property over twenty-seven million dollars in value upon the death of a surviving spouse.
I can hear the big whew! from many of you. Even with the current inflated prices for land, cattle, and machinery today many ranchers do not reach these thresholds. However, surprise! there is a catch. The above exemptions will expire at the end of 2025. After that, unless Congress acts, the exemption will drop to five million dollars for each individual.
This is a critical time and crucial for producers who might be subject to a death tax because more ranches and assets will be worth more than ten million dollars in 2026 than there are before 2025 ends where many ranches fall into the category of less than twenty-seven million dollars. To avoid breaking the law, there have been ranchers in the past, before 2017, who had to sell assets and land, or borrow significant sums of money to meet the obligations of the tax.
The worry about the impact on current ranch operations upon the death of an owner and upon future operations subjecting heirs to obligations which will hamstring their ability to optimize ranch operations will continue while there is a death tax hanging over the decision-making process. Furthermore, prudent planning to accommodate the obligation to pay a death tax is also a hindrance to diminishing the optimum operation of a ranch or indeed any business which could be subject to the tax. Lawyers, financial planners and accountants who create an estate plan cost significant money and human resources which could otherwise be dedicated to better ranch management.
There are bills in both houses of Congress to repeal the estate tax. The National Cattlemen’s Beef Association is part of a large coalition of interests to help this real effort to be successful. A tool being circulated is a survey to create a body of evidence to bolster the argument that this tax has an extremely negative impact on rural economies and the other ancillary entities that rely on agriculture. It is easy to take this survey, which takes less than ten minutes. To complete the survey, visit NCBA. ORG/Policy and follow the prompts. Responses are confidential.
To help plan for the sustainability of your operations, it is essential to do away with this tax forever, or at the least keep the exemptions at the current levels.
I’ll see you soon.
By Joseph Guild