Families talk about living through the death tax
The largest exchange of wealth in world history is occurring as the aging make final decisions about their legacy. But, with the possible return of the death tax and the changing future of farming in California, which road should be taken? Ag Alert® delves more deeply into this important and timely topic:
- Part 1: Legacy Lost
- Part 2: Redefining tradition
- Part 3: Branching Out
- Part 4: A living legacy
When a loved one dies, grief is a natural response. But for many farm families, the death of the farm's owner can signal other losses as well. A death can trigger mountains of new debt, squabbling among heirs, days of paperwork and the frustration of dealing with complicated and unfamiliar laws and regulations.
Many believe the death tax affects only the wealthiest of Americans. It's clear from the experience of many California farm families that that is a myth.
Instead, a death can means liens, mortgages and years of crippling debt. Sometimes the load is too heavy and the families can't hang on to their agribusinesses, homes and family legacies.
Here's what some California farm families have experienced:
- San Mateo County farmer Rich Deeney's family began farming in Half Moon Bay in 1865. Since then the death tax has hit the family hard several times. Every time someone dies, the death tax is far more than the original price of the land and far more than the family can pay without borrowing.
Today Deeney owns farmland valued at more than $10 million. It's used for grain and hay crops, but mostly for grazing cattle. The land is regulated by the county and the California Coastal Commission and it's held under a Williamson Act contract.
The problem is that while his land use is restricted, it's assessed as if it's developed coastline property. Given the current death tax situation and the current method of assessment, Deeney isn't sure how he'll be able to hand down the ranch.
- Blythe hay and cotton farmer Grant Chaffin's grandfather turned from medicine to farming in 1942. Although the farm had been owned free and clear for many years before the doctor's death at the age of 103, the family was forced to take out a 30-year mortgage on the property to pay the death tax in 1995.
This created several problems for the family, Chaffin said. The death tax gobbled up all the family's available cash and forced them to take on more debt to pay the IRS. A few years of poor crops could translate into a forced sale of the farming business, he said.
These days, urban encroachment may well drive up land values and, Chaffin said, the assessment for death tax purposes could easily put the family out of business, even if the mortgage is paid off.
- Lex McCorvey, executive director of the Sonoma County Farm Bureau, said his grandfather was a dairyman, just as his family had been for generations in Switzerland. After 70 years of farming in the Chileno Valley near Petaluma, his grandfather died in the 1960s. His children and their families then faced the daunting task of dealing with the death tax.
The heirs were forced to sell the family's two dairies at less than market value to pay the tax. McCorvey said the family would still be farming today if the death tax costs hadn't swept it all away.
- Susanville timber and cattle rancher Hannah Tangeman-Cheney operates the ranch her family has owned since 1862. It has been run by women since 1914.
When her mother died in 1990, Tangeman-Cheney and her sister found themselves working with the IRS, lawyers and appraisers to figure out how much death tax was due, while their grief was pushed aside.
It took two years for the family and the IRS to come to agreement on the value of the land. When the sisters didn't have ready cash for the death tax, the IRS put a lien on the property.
To hang on to the ranch, they were forced to harvest more than 13,000 trees to pay the tax bill. Many of the trees took more than 100 years to grow and the family had not intended to harvest so much. Adding insult to injury, they paid capital gains tax on the trees they sold to pay the death tax.