Death and taxes: Know the value of your estate

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“The only certainties in life are death and taxes.” Benjamin Franklin is often credited with the genesis of this phrase as he wrote “Our new Constitution is now established and has an appearance that promises permanency; but in this world nothing can be said to be certain, except death and taxes.” Franklin penned this in a personal letter to French scientist Jean-Baptiste Le Roy in 1789.

However, the inspiration for Franklin’s quote may have originated from the 1716 comedic play titled “The Cobbler of Preston” written by Christopher Bullock. One of the most famous lines in this play was “Tis impossible to be sure of anything by death and taxes.” Regardless of who said it first, this phrase is still apropos over two hundred years later.

Over the past three months, I have been traveling around Ohio giving tax and farm succession workshops so essentially, I am that guy, the one who likes to talk about death and taxes. While some shudder when they hear these two words, they should garner our attention. This is especially critical for farm managers as they plan for the legacy of their farm. So, today, let’s take a deeper look at these two certainties.

Basics of the federal estate tax

This tax is for the right to transfer property at your death. This process begins with calculating the value of your gross estate. Essentially, this is an account of the fair market value of everything that you own or have interests in at the time of your death. This could include cash, securities, real estate, annuities, trusts, certain insurances and business interests.

Once the gross estate is determined, then expenses and certain reductions in valuation are deducted to arrive at your net estate. Typically, these expenses would include mortgage and other debts, estate administration costs and property that passes to a surviving spouse and to qualifying charities. There are also special provisions for reducing the value for farms and other business interests.

Once the net estate is determined, the value of taxable gifts since 1977 are added to this number to determine the taxable estate. This will then allow you to determine if this value meets the threshold for filing with the IRS.

2024 estate and gift tax limits. If someone passes away in 2024, the federal estate and gift tax limitation is $13.61 million per person before any federal tax occurs. Any amount in excess is taxed at levels starting at 18% and then incrementally up to 40%. For Ohio residents, there is no state estate tax.

It should be noted that portability exists which allows the surviving spouse to use any of their spouse’s unused exclusion as part of their eventual estate. So, currently, a married couple can leave $27.22 million to their heirs without concern of federal estate tax. Please note the portability of the unused exclusion amount must be made on IRS Form 706.

Changes coming in 2026

There are multiple components of the 2017 Tax Cuts and Jobs Act which will expire or revert to previous levels at the end of 2025. One such provision is the estate and gift tax exclusion limits. In 2026, the limit will revert to its former level of $5 million per person indexed for inflation. Once indexed for inflation, it is expected the limitation to be around $7 million per person.

As we move towards 2026, we will watch to see what happens with the limitations. Congress or the president can extend the current estate tax levels or make the increased levels permanent. Also of note is the Death Tax Repeal Act which has been present to the U.S. House of Representative that would eliminate the federal estate tax. That said, legislation to eliminate the tax has been introduced multiple times in the past with none gaining traction. Our farm office team is monitoring this closely and will continue to provide updates.

Resources

I would encourage you to review IRS Publication 559 titled “Survivors, Executors and Administrators” as it is the comprehensive guide to administering an estate. Additionally, I would review IRS Form 706. These resources can be found at: irs.gov

Our farm office team is in the final development stages of a new estate spreadsheet which can help you determine the value of your estate. If you would like to receive a copy of this resource when it is completed, you can sign up at: go.osu.edu/excelwithfarms We also have a whole host of resources on the farm office website at http://farmoffice.osu.edu.

Encouragement

We recommend that every farm family take the time to develop an estate plan. This will allow you to examine the estate tax risk you might have. Added benefits include being able to avoid or minimize the cost of the estate settlement process and to reduce or prevent disputes over the division of your assets. So, there is no better time to start time to talk about death and taxes. Good luck as you begin this process!

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