Farmers’ Initial Excitement About Taxpayer Relief Act Has Turned To Disappointment

Farmers have learned to look one more gift horse straight in the mouth.

It’s the estate and gift tax exemption in the Taxpayer Relief Act of 1997. It might look good to ranchers and farmers, but those who plan to pass the business to their heirs are looking twice before they leap into the latest congressionally-authored complication.

The Taxpayer Relief Act, a portion of which is a $1.3 million exemption of inheritance tax for small businesses, goes into effect Jan. 1.

To qualify for the exemption, a business has to comprise at least half of the estate and the deceased has to be running the business up to the time of death.

Any futures bought to protect the value of a crop would be considered an investment asset, and not part of the business. The investment which may make the business worth less than 50 percent of the estate could knock the inheritance out of the exemption.

Also, the heirs have to keep running the business for 10 years after the death of the farmer.

“That’s 10 years of loopholes,” said Tom Drynan, a Spokane-based estate planning advisor.

“Any people, including the farmers, need to understand the provisions before they leap for some of the new options,” Drynan said. “We’re recommending they consider it, but we’re also recommending they seek independent counsel and that they don’t scrap what they’re doing now in order to qualify for it.”

Farmers’ excitement about the tax act has turned to disappointment.

“It isn’t worth the paper it’s written on,” said farmer Jerry Scheffels of Wilbur after hearing an explanation of the changes.

“It’s the old give with one hand and take it away with the other.”

Scheffels is looking for ways to leave his land to his heirs so they won’t have to sell it off in order to pay the inheritance taxes.

The $1.3 million deal is good “if someone dies unexpectedly and they’re young, it may help tremendously,” Drynan said. “But it won’t benefit as many families in farming if the owners are in their 60s, 70s and 80s.”

Barry Roach, Drynan’s partner, warned that some of the qualifications for the exemption might be tested in court.

Both advisers said farm owners could still take advantage of the $600,000 individual exemptions which will increase to $625,000 in 1998. They also recommend having a combination of trusts and wills in order to best channel the estate to the heirs.

Everyone’s wondering what is the best route. “It’s hard to pass on the estate to heirs especially when there are several kids and only one kid farming,” said Scheffels.

His friend agreed.

“It’s not fair to saddle your son with three other landlords,” said farmer Gary Rosman.

He’s fortunate, he said. His brother, who lives west of the Cascades, inherited half of his farm and has a totally different view of the investment. “But I’m lucky he understands farming.”

, DataTimes