Death Tax Repeal Critical

[Cal]

Death Tax Repeal Critical to Livelihood of U.S. Cattle Families
NCBA urges House support for permanent repeal legislation

The National Cattlemen's Beef Association (NCBA), representing generations of ranching families across the nation, strongly supports the new Hulshof-Cramer Death Tax Repeal Permanency Act of 2005. The legislation is being introduced today in the U.S. House of Representatives by Rep. Kenny Hulshof (R-Mo.) and Rep. Robert E. "Bud" Cramer (D-Ala.).

"The excessive burden of the Death Tax has had major ramifications for my own family business and is devastating to U.S. farmers and ranchers," says Texas cattle producer and NCBA President Jim McAdams. "Hundreds of thousands of rural families are living off the land, working hard to maintain ranches built by their forefathers. The Death Tax hits with a devastating blow of up to 55 percent in taxes on the entire operation when a family member dies. It is an unfair tax on American values and the American dream."

In an asset-rich and cash-poor business like ranching, the appraised value of rural land is extremely inflated when compared to its agricultural value. Many cattle producers are forced to sell off land, parts of the operation, or the entire ranch to pay off tax liabilities. This takes more open spaces out of agriculture production, usually into the hands of urban developers. Currently, a 10-year phase-out to full repeal by 2010 is scheduled. But the tax will be re-instated in 2011 (back to 2001 levels) unless Congress approves legislation making the repeal permanent.

"The death of a family member should not be a heyday for the IRS," explains Jay Truitt, NCBA's vice president of government affairs. "We have farm and ranch families that are paying for their ranches two and three times, all while paying taxes on the income used in their operations. The current temporary repeal was a step forward. But unless you're planning on dying in 2010- the time is now to pass the Hulshof-Cramer bill and finally bring about the death of the Death Tax."

"This is not a tax on the wealthy elite in America. It's a death warrant for small-to-medium sized family businesses," explains McAdams. "The cash-rich can afford accountants and estate planners to help them evade the tax. They amass fortunes and place the money in foundations. Unlike us, their financial worth does not rest on the value of equipment and land."

With 97 percent of American farms and ranches owned and operated by families, the elimination of the Death Tax represents an important step in stimulating the nation's economy. The U.S. cattle industry is comprised of more than 1 million individual farms and ranches and represents the largest sector of American agriculture. NCBA will continue to fight for permanent repeal, and urge House members to support the Hulshof-Cramer Death Tax Repeal Permanency Act of 2005.

 

[rancher]

I think when they get rid of the death tax it will really hurt the people that inherit as they lose the inquired capital gains base they get if they pay the tax.

 

[Cal]

I think when they get rid of the death tax it will really hurt the people that inherit as they lose the inquired capital gains base they get if they pay the tax.

I think the key part of your statement is "if they pay the tax". I found a basic death tax rate summary. I think resources could be put to much better use than overpaying accountants and estate planners to try to figure out how to survive a possible huge tax assessment;

Current federal death tax rates are assessed as follows:
Estates valued up to $10 million pay taxes on a graduated rate system which ranges between 18% and 55%. An exemption is allowed for the first $650,000 of an estate's value. This exemption is fixed and not indexed for inflation.
Estates valued between $10 and $21 million are taxed at a rate of 55%. In addition, an additional 5% surcharge is levied. This surcharge has the effect of phasing out the $650,000 exemption completely as the value of the estate approaches $21 million.
Estates valued at over $21 million face a tax rate of 55% and no exemption is allowed.

 

[rancher]

Even if you inherit under 650,000 dollars now you get the stepped up basis in the land and cattle. Sure comes in handy on income tax. Had a friend just go through these and has depreciation value on the cows and machinery he inherited now.

 

[Jason]

Do any of you know the original reason for death taxes?

They were instituted to prevent huge family built land masses taking over and never coming back into the marketplace.

I sit and listen to some on these boards complain how broke they are then in the next breath talking about new machinery, ski trips, how much tax they pay etc. etc. Those who are nearly broke don't often complain much at all.

The death tax is a known commodity and if it looks like it will put you at risk, there are ways to reduce your burden. Yes it will cost some money for an accountant/lawyer but those are tax deductable expenses.

What about the situation where a family loses the last rancher and the kids all work in the city. Should they inherit a multi million dollar estate for free?

Doing some basic estate planning might wake a few up to reality. Many would be better off to sell their land and invest the proceeds rather than continue ranching. Others are better off running cows.

Consider the tax laws in many US states that allow an ag exemption where people have held off farm/ranch jobs and never paid any tax on those earnings because of their ag exemption. Allowing a 150% writeoff certianly makes it easier to ranch South of the 49th.

 

[Anonymous]

Cal, the current exemption is much more than the $650,000 figure you posted. It is over $1,000,000.

 

[alabama]

I think it is a shame that the goverment can get 50% the farm when we die> it sure make it tough on the kids to take over when they have to sell !?@ of the operation just to pay the taxes>

 

[Soapweed]

Jason: "Do any of you know the original reason for death taxes? They were instituted to prevent huge family built land masses taking over and never coming back into the marketplace."

That may have been the original intent, but in the world of today, if ranches get sold off to pay inheritance taxes, chances are the ranches will be bought up by "big land mass entities" such as Ted Turner, the Morman Church, the Nature Conservancy or others of questionable desirability.

Jason: "I sit and listen to some on these boards complain how broke they are then in the next breath talking about new machinery, ski trips, how much tax they pay etc. etc. Those who are nearly broke don't often complain much at all."

Don't tell me you've become a "victim and a whiner" and are jealous of American gringos?

Jason: "The death tax is a known commodity and if it looks like it will put you at risk, there are ways to reduce your burden. Yes it will cost some money for an accountant/lawyer but those are tax deductable expenses."

Everything in a person's estate has already been highly taxed already, as the estate was built up. Death tax just represents "double", "triple" or "quadruple" taxation. Whether it be a ranch or a main street business, if they get taxed too much in the transfer from one generation to another, chances are the business will cease to exist.

Jason: "What about the situation where a family loses the last rancher and the kids all work in the city. Should they inherit a multi million dollar estate for free?"

What if they do? If the estate was bought and paid for by legal means, what difference is it to you or me if someone inherits it free and clear. My guess is the people inheriting it will put the money to better use than will the government.

Jason: "Doing some basic estate planning might wake a few up to reality. Many would be better off to sell their land and invest the proceeds rather than continue ranching. Others are better off running cows."

That may be the case, that "many would be better off to sell their land and invest the proceeds rather than continue ranching". That could be true, but once again, what does it matter to you and me if they continue ranching? The agriculture community, as a whole, is probably better off if the people continue ranching, even if there is no big profit in it for the ranchers. If Ted Turner buys up the ranch, it is not good for anybody, not even him.

Jason: "Consider the tax laws in many US states that allow an ag exemption where people have held off farm/ranch jobs and never paid any tax on those earnings because of their ag exemption. Allowing a 150% writeoff certianly makes it easier to ranch South of the 49th."

Once again, don't tell me you've become a victim and whiner and are jealous of American gringos.

From the Hind Tit post awhile back:

Jason: "Inheriting a large piece of property and selling a set of calves each year doesn't take a rocket scientist. I happen to have done some work in Texas and understand much of the mentality of ranchers there. Can you say you (meaning Hay Maker) have expanded your horizons and learned anything about the industry beyond your area? Do you know how your calves feed and grade? Or is it not your problem as long as you make a buck? Thank goodness the packers don't have a way to identify your calves or you might find yourself on a list of not so prefered customers."

Once again, is this any of your concern? From my many years of observation, if a "rocket scientist" were to inherit a large piece of property and try to run a bunch of cows, chances are they couldn't make it. I have watched as very bright and progressive people have been "too smart for their own good" and fiddled around and lost good cow outfits. Sometimes simple dedication, perserverence, and following a bit of tradition wins out in this business more than being too smart and creative.

 

[rancher]

Soapweed, good post!

 

[Cal]

Soapweed, You did an absolutely admirable job on this post, great work!

Jason, I must say I'm a little surprised how you came down on the far left side of this issue. Doesn't really jibe with most of your previous posts, IMO.

 

[Jason]

I merely stated the death tax is currently a fact of life ( and death) in the States. Don't whine about it plan for it.

Soapweed says it isn't my concern...and basically thats what I posted. Some should survive and some shouldn't. I didn't say I should be the one who chooses who is who.

I don't see where I blamed anyone for good or bad luck, just stated some facts others don't always like to face. It is not a God given right to ranch. It is a business and those who feel they should live by different rules than other business (don't compete with me) will be forced out.

The statement everything in the estate has been taxed as it was built and a death tax is a double triple or quadruple tax is not accurate. The tax exemptions for ag shows it is sometimes built with no tax.

I am not jealous of those ag exemptions, they serve a purpose, that of getting investment money from other sectors into ag. It may or may not mean too many cows on small places, but someone in ag benefited from the extra investment.

When I asked the question of a non ranching heir recieving the ranch free and clear, I meant with the intent that it would be preserved for ranching, when everyone knows they will sell it off to the highest bidder. If ranching should be cut special treatment ( by exempting it from taxes others must pay) how do you deal with those situations where the special treatment winds up going to a non ag sector?

I don't get it. I am labeled the whiner complainer, let government help us victim when I am the only one saying deal with reality, don't expect the government to change laws to suit your whims.

As a banker I would expect Soapweed to know how to assist his clients in managing the death tax. It is as easy as carrying insurance.

 

[Soapweed]

Soapweed is a bona-fide rancher, and current member of NCBA, which is trying to eliminate the death tax permanently. Sandhusker is a banker, runs cattle on the side, and is a current member of R-Calf. We are friends, but are not the same person. We are each shooting for separate stars.

 

[Faster horses]

Soapweed, take a bow. You done good!!!

BTW, where'd you get the picture of the.......Soapweed?

I have a picture of our new pup in may e-mail inbox. How do I transfer it over here so I can use it by my name like you did your soapweed?

Does anyone have any idea?

 

[Jason]

sorry for the mix up.. i should have known that, things are still a bit jumbled with the new format..changed all my routines

but the rest of my post still makes me wonder why i got called a whiner

 

[Soapweed]

Jason: "but the rest of my post still makes me wonder why i got called a whiner"

Mayber I just read your original post wrong, but that is the way it came across to me. Seemed like a lot of jealousy against those of us south of the border.

In all seriousness, the death tax puts a lot of ranches and main street businesses "out of business". If it could be permanently eliminated, the status quo could certainly remain more stable. It is hard enough for kids staying on the ranch to buy out their siblings, let alone pay half of the value of a ranch to Uncle Sam, who just turns around and squanders the proceeds anyway.

 

[Soapweed]

faster horses, the picture of the soapweed was one I took a few years ago. It didn't come across as good as it looks in the original photo, but isn't too bad. My dear wife did all the technical part of accomplishing this. She scanned the photo, and transferred it over to the avatars somehow.

 

[Broke Cowboy]

Death and estates.

Everyone thinks / knows that they need a lawyer. Everyone thinks / knows that they need an accountant.

What most people DO NOT know is that they also need a good financial advisor or planner. Someone who researches insurances and investments and then relates it all to your personal circumstances in accordance with the laws of the day. Someone who can build an estate plan that will protect your assets and ensure you have the ability to pass your operation on to the next generation without killing the inheritors with a huge financial burden.

Believe me when I say - more than one operation has been lost because the PARENTS did a lousy job in preparing for the hand over.

If you think your accountant is qualified to do this on his own you are nuts. If you think your lawyer and your carefully prepared will will protect you - then once again - you are nuts.

No - in reality, if you believe this - then you have not done your homework - so do your homework. If you do not do your homework - well then you are really nuts.

The only way to do this properly, is to have a team prepare your hand off to the next generation. It does not matter if you are a small operation or a big operation the principles are the same.

HAve the financial planner, or the estate planner do all the work and co-ordination. He is the generalist that usually has the big picture at heart and will advise the specialists as to what they are required to do. He is qualified and licensed and carries a pile of "errors and ommissions" insurance to back up his qualifications. If he does not, then he is not a true qualified planner. Go find another planner.

If you do not want to spend the money - well, then the feds are quite happy to take their share and let you breakup the operation and sell it at a fire sale price to cover the incomeing tax bills. Believe me, the money you spend now will be a lot less than what the feds will be happy to take when you or your parents die.

My brother has an operation today because my parents - at a young age they bought what was then considered an unseemingly amount of life insurance. Almost half a million dollars of whole life in the early 60's. They updated their WRITTEN financial plan on a yearly basis.

If you do not have a written plan - showing where you are today and where you want to be in one, three, five, ten and at retirement years then you are not doing yourself any favours - and you certainly are not doing your family any favours. How do you truly know where you are going if you do not know where you have been and where you are today.

My folks were not rich. In fact they nearly lost this place that I love to visit - more than a couple of times.

They realized early in life that lawyers do law. They realized that accountants do taxes and they realized that financial planners / estate planner put it all together in a "big financial picture" perspective. THe financial planner is the man who reccommended them contacting an insurance agent and discussing the purchase of this coverage. He is the one who built the estate plan that successfully transferred all of the property from their generation to my generation - and paid ALL the damned bills that came along.

You would not believe who showed up out of the wood work - after the funeral people, the federal tax people, the state tax people, the various bill collectors - utilities, truck and machinery, cattle folks, hospital, old folks home, doctors, drug store, lawyers, accountants, hardware store, veterinarian - and a whole bunch more showed up to grab their piece of the ever deminishing pie. Taxes may be the least of your problems.

The taxes AND ALL THE BILLS on my brothers' place were covered with that insurance money. No lawyer or accountant even thought to reccommend that type of coverage. Was it expensive? Yup - but the price never changed - so while it was expensive for the first few years, it actually got cheaper as inflation rose. No different than buying a car for three thousand bucks - in those days expensive - today - cheap. It is all relative.


But, unlike the cheaper TERM insurtance, it increased in value over time, and it generated and carried a pretty significant amount of ready available cash inside the policy that my folks sometimes accessed. In fact my Mom used to say it was one of the best investments they ever made.

Thank heavens my folks listened to a man some years ago and did what they did.

A side note - for you folks starting out - Do it sooner than later. Do it before you have kids - every year you get older, and starting that plan gets that much more expensive. Do it before - God forbid - you are seriously injured or killed in an accident - or disable and can't work. This can happen at any age - and most of us know someone who has experienced this. Get some GOOD disability coverage - not the cheapo **** that covers you just good enough and long enough to let you gradually go broke and lose the place. Get some GOOD critical illness insurance that covers you when you have that heart attack / stroke / parkinsons, bypass surgery and so on - not the cheapo **** that covers you long enough to go broke and lose the place.

Do this soon - do it tomorrow - do it because once you get sick or injured you are too late - your now permanently screwed and can never get that coverage.

It kept this family operation in the family. In the end, that is what it is all about.

If I see one person write and say "I cannot afford to do this" - I will respond early and now by saying the following: "It is cheaper than selling your place at a loss to cover your expenses and then giving the rest to the various tax agencies."

I know, I have seen it happen - and so have a bunch of you folks.

I have nothing to gain from any readers while I preach on this subject.

Hopefully it will cause at least one person to sit back - think and then take action.

BC

 

[Soapweed]

Good post, BC.

 

[Broke Cowboy]

Thanks Soapweed,

I am on my high horse about this because we know a young fellow lost a good business and his brother lost the ranch - just because their folks did nothing to plan for a hand off. We always thought things were in hand. Turns out we were wrong.

When their folks were killed in a car accident, everything went south. Yeah, they always figured there was time to do the planning. God, a slippery road and a bigger truck took that time away from them.

Darned near broke my heart as we were all very close.

I am older than most would think. I am also pretty outspoken about things now because I have nothing to lose. My friends will always be my friends and the rest can take a hike.

So when I vist folks I tend to up front ask them about their plans. So many folks figure that this is personal and private information. I tend to disagree because it will all be in the open if they do nothing about it and everything they worked for many years to produce goes south.

I hammer this all the time now. All the time.

Too many figure it is something that "we'll get around to". Of those people, to few actuially do something about it.

Readers, if you think you aer set up because you have a will, you are wrong!

If you think you are set up just because you have a lawyer and/or an accountant, you are wrong!

Get your butts down to a no kidding estate planner. One who is licensed, acredited and carries errors and ommission insurance. Lay it all out on the table. You won't be arouund, but you can be sure the surviving mermbers of your family will thank you every day for yourforesight and planning.

Or sit back and let 50% your hard earned money, assets and livelihood go to the government.

THe choice is yours.

BC

 

[Faster horses]

Wow!! BC that is pretty deep stuff!!

We have a very successful friend that says everyone must have their passions. This is yours, and most folks on here know what mine is...

Now, I have some questions. First of all you scared the beejesus out of me because we don't have anything but a will, so your advice hit home. The only estate planner that has tried to talk to us is with Farm Bureau Insureance. We have had FB Insurance for most of our married life, we like it and trust it as far as property insurance goes. Would their 'man' be okay to talk to about this--since they are the ones that have tried to point out to us that we do need estate planning?

Our banker, who has passed away and was a dear friend, always told us just to purchase term insurance. David Ramsey, the financial guru says to everyone, 'only buy term insurance.' Anything else is a p-poor savings plan that doesn't pay enough to you. Invest in mutual funds, (etc) and just buy term life insurance. Over and over, David Ramsey never varies from that statement. So I am wondering if you put the money in investments that you would put in the type of insurance you speak about (and which type is that, by the way) and get term insurance if you wouldn't be better off?

At any rate, thank you for taking the time to warn us of what can happen if you are not prepared. Your post gave me the chills and I will do something more here than what has been done. Thank you, thank you.