The federal estate tax, often referred to colloquially as the “death tax,” takes a cut out of the assets left behind by individuals at the time of their death. Currently, only estates valued over a certain amount are subject to the death tax.

However, while the estate tax is primarily aimed at wealthy individuals, many argue that it does not accomplish its goals and that it has a disparate effect on farmers and small business owners. Through careful estate planning, high net worth individuals can often circumvent the death tax entirely, while those with most of their worth tied up in land or business equipment may take huge hits. When a farmer or operator of a small business dies, their heirs may have to sell off land or other critical assets just to pay estate taxes, potentially resulting in the ruination of a profitable enterprise.

One Texas Congressman, Kevin Brady, is seeking to eliminate the federal estate tax entirely in 2012. Congressman Brady’s bill, the Death Tax Permanency Repeal Act, has garnered bipartisan support from over 190 members of Congress, as well as advocacy groups like the National Cattlemen’s Beef Association.

If full repeal of the estate tax proves impossible, supporters are still looking to make the 2010 estate tax relief package permanent. Under that legislation, still currently in effect, estates worth less than $5 million for individuals or $10 million for couples are exempt from taxation; an estate’s net worth over the exemption limits is taxed at 35 percent (under the former default law, there was only a $1 million exemption, with the excess taxed at a 55 percent rate).

Only time will tell if 2012 will mark the death of the death tax. In the meantime, prudent estate planning will remain the best tool to ensure generational continuity in important family assets.

Source: Iowa Farmer Today, “Time for permanent relief from the federal ‘death tax,’” Kent Bacus, Feb. 10, 2012