AZ Estate Planning News

AZ Estate Planning News

Knollmiller and Arenofsky Trust and Estate Planning

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Does the Estate Tax Really Hurt Small Businesses and Farmers?

Estate tax critics very often say the estate tax hurts farms and family businesses. I certainly don’t want to enter the tax vs. limited tax debate so I will offer no opinion here but the dialogue should be with the facts, not statements that are repeated so often they get treated as though it were facts.

Back in 2010, Sen. Chuck Grassley, a Republican from Iowa, stated that the government shouldn’t take “more than half the estates of farmers and small business owners who have scrimped, sacrificed and saved their entire lives to build up a family business.”

An IRS report back at the time the estate tax limit was 3.5 million casts doubt on the claim that farmers and small-businesses are the main victims. According to a white paper by Brian Raub, an economist with the IRS Special Studies Special Projects section, farms and family-owned business account for a small fraction of estates worth $3.5 million or more.

The study shows that in 2007, investment real estate — which includes farms, undeveloped land, real-estate investment funds, real estate partnerships and other investments — accounted for only 15% of total portfolios for estates over $3.5 million. Farms are only a fraction of the 15%.

Limited partnerships and business assets account for about 5.5% of their total assets.

So what is in the big estates? Mostly publicly traded stock. The study found that publicly traded stock accounted for more than a third of the assets held by estates of $3.5 million or more.

It is reasonable to assume that the current limit over 5 million will include even less family farms and small businesses if you believe what you read about the value of these farms and businesses at the present time.

Of course, some small businesses and farmers will get hurt from the current 5+ million estate tax limit but it’s misleading to say farmers and small businesses would bear the brunt of an estate tax.

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