In Minnesota, a special state law offers an exemption from estate taxes due on qualified small business and agricultural homestead property. Not all states have a rule like this, but if yours does, be sure to understand your options. Check with your local Extension office for details.
One of my favorite pieces of advice is, measure twice, cut once. I learned it in ag shop and it pops up over and over in life. It's great advice for farm legacy planning. There are a lot of details and lots of options in a legacy plan. It just makes sense to review regularly to be sure everything is as it SHOULD be.
A great example of this is found in my home state of Minnesota. In 2011, Minnesota created a new estate tax rule for qualifying small business or family farms to allow for a $4 million Minnesota estate tax exclusion, per individual, in addition to the standard $1 million Minnesota estate tax exclusion available to every individual.
This rule is great. Many farm families assume they qualify. What if they are wrong and only discover it after the death of the property owner? It could be an extremely costly mistake. It's worth asking your estate planning expert to check your records to see if you qualify for the homestead exemption.
You may be surprised to learn how a few common situations qualify under the Minnesota homestead guidelines:
• If the landowner lives on the property but cash rents the property to an unrelated tenant, the property IS HOMESTEAD.
• If the landowner does NOT live on the property and is NOT within four contiguous townships of the land, the property is NOT HOMESTEAD. No matter if a family member lives on the land or if a family member farms the land.
• If the land is owned by an authorized entity with the landowner as a member of the entity and the landowner A) lives on the land or B) lives in town within four contiguous townships of the land, and rents the land to a family member who is NOT a member of the entity, then the property is NOT HOMESTEAD.
I recommend every client confirm the homestead status just to be safe.
In most cases, if the property shows as homestead with the Minnesota department of agriculture at the owner's date of death it then qualifies for the homestead exclusion. The process is tricky so check with a qualified estate planning professional about questions in your specific case.
The University of Minnesota Extension Service has created an extremely useful reference to help understand whether your farm property qualifies as a homestead for the Minnesota estate tax exclusion: Minnesota Homestead Guidelines Info Sheet.
If this blog has got you thinking about your own situation, get in touch with my office ([email protected]). I am always happy to visit with folks working on their transition process.
The opinions of Rich Dunn are not necessarily those of Farm Futures or the Penton Farm Progress Group.