Estate tax proposal would help farm families
Rancher Sam Dolcini, second from right, said estate tax-relief legislation for family farms and ranches would "eliminate a huge burden." Dolcini posed on the family ranch in Marin County with, left to right, parents Earl and Micky, brother Phil, sister Mimi Bundensen and nephew Riley Dolcini.
Too often when farm and ranch families suffer the loss of a loved one, they must also deal with the wrenching decision of how to satisfy the estate or inheritance tax for property that is passed from one generation to the next. To help family farmers and ranchers, legislation has been introduced to reform the federal estate tax, enabling farm families to continue farming without having to sell property—or even their entire farm—to pay estate taxes.
Supporters of the bill say breaking up family farms to pay estate taxes also undermines land stewardship, rural economies and domestic food production.
A large coalition comprised of 28 farm organizations has endorsed tax-reform legislation that would exclude farm assets from the federal estate tax as long as the farming operation remains in the family.
"The estate tax has penalized farmers and ranchers for decades," the California agricultural organizations said in announcing support for the bill last week. "When deaths occur within a family, it is usually impossible to continue the farming operation without re-mortgaging the property or selling some or all of it to satisfy the tax settlement."
The Family Farm Preservation Estate Tax Act, H.R. 3524, would exempt farm and ranch assets from estate taxes as long as the property remains as a family agricultural operation. Introduced by Rep. Mike Thompson, D-Napa, and Rep. John Salazar, D-Colo., the bill would also exclude land enrolled in a qualified conservation easement from the estate tax.
"Farmers are many times more likely to be impacted by the tax than a small business or even the traditional, wealthy private estate owner," said Josh Rolph, California Farm Bureau Federation director of national affairs. "In agriculture, a family's assets are tied up in land, buildings and other working assets that do not lend themselves to easy liquidity."
Rolph said he considers it a near certainty that Congress will move to act on estate tax legislation before the end of the year, because current law passed in 2001 will phase out the estate tax entirely in 2010—only to have it reappear in 2011 at the pre-2001 level. Farm organizations say that returning to the previous estate tax levels would severely damage a farmer's ability to pass a farm or ranch to the next generation.
Sam Dolcini, looking over ranch records with father Earl, said current tax laws force the family to spend money on estate planning that they would prefer to invest in their ranch.
Fifth-generation rancher Sam Dolcini, whose family runs a beef operation in Marin County, has been working on a way to exempt family farming operations since the 1990s. The Dolcini ranch has been in the family since the 1850s. He and his siblings grew up feeding livestock, taking care of animals and riding horses, and now they are observing the next generation following in their footsteps.
"You don't feel like you just own a ranch when it has been in the family for five generations. The feeling you get is it is yours to care for and to pass on to the next generation," Dolcini said. "Should H.R. 3524 pass, it will be welcome relief and eliminate a huge burden for farm families."
Dolcini noted that farm groups have sought estate tax reform for many years.
"When we first started this process of solving the estate tax issue we got laughed at. It has been a long row to hoe but it is great to see we've come this far," he said.
Dolcini recalled that in the 1960s his grandfather paid an estate tax bill that was in the thousands of dollars. His grandfather's tax bill was calculated during a time when real estate values in the county were based on the value that the business could generate. As it stands, Dolcini said, the tax bill in Marin County today is solely based on the equity value established by outside estate buyers.
"Farm properties in Marin County today are appraised as estates, which means the profit that the business earns is no longer part of the appraisal process and value is based off of the land itself," he added. "The only way to convert equity to cash is by selling parcels of land or the entire ranch."
Dolcini indicated that over the years, his family has spent tens of thousands of dollars on estate tax planning, legal fees and life insurance, when they would have preferred to invest that money back into their family business.
"If we were able to invest that money in the ranch we would be running a completely different business, one that is more efficient and with a great potential for more employees," Dolcini said. "Now you just write that money off at the top of the year and there is nothing you can do."
In addition to ensuring food security for the nation, "there are multiple benefits when farmlands remain within the family," the farm groups said in endorsing the reform measure, "including the preservation of open space and a strong conservation ethic." Allowing farmland and ranchland to stay within family ownership, they said, retains the knowledge of the land's soil, water, wildlife habitat and other resources that assure continuity of stewardship practices.
Environmental groups have also endorsed the legislation, including the Environmental Defense Fund, Public Lands Council and the Land Trust Alliance. In a letter to Rep. Thompson, Rand Wentworth, president of the Land Trust Alliance, endorsed H.R. 3524.
"Estate taxes can undermine important conservation values by forcing the breakup, sale and development of family-owned farm, ranch and forest lands, even when those lands provide important resources for the public, including high-quality watersheds, wildlife habitat, and food and fiber production," Wentworth wrote. "Your bill's provision for the deferred estate taxes to be paid upon any subsequent sale of such lands is fair to all taxpayers, and ensures that this deferral is not used to simply avoid taxation."
Rolph commented that there is significant momentum moving forward with the legislation and indicated that the bill's supporters can help gain backing for the bill by contacting their members of Congress.
Agricultural groups supporting H.R. 3524 include Allied Grape Growers, Apricot Producers of California, Agricultural Council of California, Blue Diamond Growers, California Association of Wheat Growers, California Association of Winegrape Growers, California Canning Peach Association, California Cattlemen's Association, California Citrus Mutual, California Farm Bureau Federation, California Grain and Feed Association, California Grape and Tree Fruit League, California Pear Growers Association, California Poultry Federation, California Rangeland Trust, California Seed Association, California Tomato Growers Association, California Warehouse Association, California Women for Agriculture, California Wool Growers Association, Nisei Farmers League, Prune Bargaining Association, Raisin Bargaining Association, Ventura County Agricultural Association, Western Growers, Western Pistachio Association, Western United Dairymen and Wine Institute.
To follow this legislation, go to www.cfbf.com and join Farm Team to receive online updates and Action Alerts.
(Christine Souza is an assistant editor of Ag Alert. She may be contacted at email@example.com.)
Permission for use is granted, however, credit must be made to the California Farm Bureau Federation when reprinting this item.