Illinois Estate Tax

Consequences of the Estate Tax

As Illinois farmland prices have skyrocketed in recent years, many landowners have become very wealthy. While perhaps a fortuitous situation to face, many seasoned farmers may find themselves in a position where the estate tax could become a problem for their family. Sterling Land Company has seen the consequences of the estate tax first hand when a family is forced to sell their land to cover the bill.

Also known as the death tax, the estate tax is a money grab by federal and state governments. The tax takes property away from families by claiming that some portion of an individual’s wealth should be shared with the public after death. Keep in mind, this is commonly wealth that has been accumulated as income and has already been taxed as such.

Estate tax rates can reach up to 40% federal and 16% in Illinois. While these numbers are terrifying, there are exemptions that make estate tax liability unlikely for most people. However, there are many large farms out there that can be subjected to large taxes when transferring the family farm to the next generation.

The federal tax begins at 5.25 million dollars of net wealth. Illinois has recently raised the exemption to 4 million, but that number is a bit misleading since increases in percentage rise quickly so that benefits of the new, higher exemption are negated.

Rich Illinois Farmland

Given the rich value of Illinois farmland, a 500 acre farm can easily trigger estate taxes. This has been especially true of potential development land. Since the value of the farmland is assessed at current market value, farms in the path of progress can trigger huge potential estate taxes. In these situations, families must find a way to raise cash to cover the tax. In some instances, families are forced to sell the farm since the estate tax can be hundreds of thousands or even millions of dollars.

Estate planning under the newer rules is more important than ever. Federal law now allows something called portability which gives a spouse the ability to use their partner’s exemption when they die. This means that 10.5 million dollars could be the exemption for a farmer when calculating the federal portion of the estate tax.

Large Farm Estates

Naturally, Illinois isn’t as kind and no portability provision exists. Therefore, the taxes will start at 4 million and can reach as high as 16% on some large farm estates. With the estate tax starting at a relatively low amount, a farm of 300 acres can be at risk of liquidation to pay the tax.

While few have sympathy for the typical rich that are associated with the estate tax, a hard working farmer shatters that stereotype. Sterling Land Company is happy to assist in selling a farm, but we are not thrilled at the prospect of the government forcing a family farm to dissolve in order to pay an unjust tax.