Copyright © 2010 EBS Responsible Wealth

For some farmers and ranchers a conservation easement, in combination with life insurance to pay estate tax, may be effective in heading off a forced sale and loss of an entire way of life. The purpose of this white paper is to explain in layman terms how a conservation easement can help you and your family pay less income tax, less estate tax, and help preserve the land for your children and grandchildren. We will address what is in it for you and your family. We are not going to discuss the wonderful non-financial reasons for preserving and protecting your land in perpetuity. We want you to understand and appreciate conservation easements from a selfish perspective. Doing something good for society then becomes the icing on the cake. We are not affiliated with any land trust, government agency, or other charitable organization.

Copyright © 2010 EBS Responsible Wealth

Why Should Farmers & Ranchers Care About Section 2032A?
Section 2032A is designed to provide an estate tax savings to certain farmers and ranchers. It can allow you to value your real property at an amount that is less than its highest and best use (i.e. housing development); which is how it would normally be valued for purposes of the death tax. For 2010, the maximum amount the value can be reduced is $1,000,000. In future years, the $1,000,000 will be adjusted for inflation, rounded down to the nearest $10,000. So at a 45% estate tax rate (assuming congress finally settles on the same rate as in 2009), the potential death tax savings is $450,000. For some taxable estates of modest size, with less valuable farm or ranch properties, a $1,000,000 reduction in value might help solve your estate tax liquidity problem. For larger estates with more valuable properties, it might be just a spit in the bucket.

Copyright © 2010 EBS Responsible Wealth

Many closely held businesses do not survive the death of the owner. While there can be a variety of non-tax reasons, the lack of liquidity planning, much of which caused by federal transfer tax laws, can be a dominant factor. Insufficient liquidity with which to pay the estate tax may cause a forced sale or liquidation of the business. This writing is intended to give the layperson an overview of Section 6166, a section of the Internal Revenue Code that is supposed to provide some relief.

Why is Section 6166 Important to A Business Owner?

The estate tax is usually due within nine months after a decedent’s death. Subject to meeting a variety of rules, some of which are unclear and subjective, Section 6166 allows an estate to defer estate taxes for up to 14 years on the portion of the estate tax related to a closely held active trade or business. The deferred tax is subject to interest at favorable rates. Depending on the facts and circumstances, an estate can be eligible to pay interest only for the first five years followed by ten equal installments of principal, plus interest.