If there’s one topic we address more frequently on this blog than others, it is the issue of estate planning, and for good reason: It is one of the most important actions a landowner takes to ensure that ownership passes along to the next generation in a smooth, straightforward manner. Proper estate planning allows one’s heirs a fair share of the estate and a comfortable living, while also ensuring that they are not left with crippling estate taxes.
It is often helpful to start at square one when discussing taxable inheritance. In Nebraska, property that is left when a property owner dies is taxed. This is known as the inheritance tax, and the rate of inheritance tax that is applied to an heir depends upon how closely the inheriting person was to the deceased. The surviving spouse is always exempt from the inheritance tax, no matter the amount he or she inherits. Similarly, charitable, religious, and educational organizations who receive money from estates are also not taxed, provided that certain requirements are met.
All other inheritors are divided into groups, with the closest relatives paying the lowest tax rate. If the amount received is $40,000 or less, no taxes are owed. This exemption applies to parents, grandparents, siblings, children, and grandchildren of the deceased. If the amount inherited is more than $40,000, the inheritance tax is one percent of the clear market value of the property. For the next tier of inheritors (aunts, uncles, nieces, nephews, and spouses of these persons) the inheritance tax exemption is $15,000. Amounts above $15,000 are taxed at a rate of 13 percent. For all other inheritors, the rate is 18 percent of any amount over $10,000.
For farming families, given the high value of land, it is readily apparent that these amounts may add up rather quickly, and even a 1 percent tax rate owed on a single quarter of land could be difficult for many inheritors to pay. This is where estate planning comes in: Carefully structured estate plans, with the help of qualified lawyers and accountants, can alleviate these issues for one’s heirs, while ensuring the continuance of the farm, if desired. Several estate planning tools, including unified credit, gift, annual gift tax exclusions, or trusts, allow inheritors to avoid the severe taxes that may be incurred when a relative dies.
The benefits of forming a proper estate plan are too many to include here. Estate planning is a vitally important part of ensuring that the work you’ve put into your farm and land is kept intact as you head into retirement. It is important to pass along your assets to your children and grandchildren, without leaving them a heavy tax burden in the process, while also ensuring a financially secure retirement for yourself. If you have questions about estate planning, contact a UFARM land manager; they are able to help you sort through your options and point you in the right direction.
UFARM offers a full range of Nebraska land management services, including real estate sales, rural property appraisals, consultations and crop insurance. UFARM has operated in Nebraska since the early 1930’s. Contact us today!
Sources consulted: Hawbaker, Joe M. “Farm and Ranch Estate Planning: An Introduction.” Cfro.com. Center for Rural Affairs. Web. 08 Jul. 2015. Randolph, Mary. “Nebraska Inheritance Tax.” NOLO Law for All. Nolo. Web. 08 Jul. 2015.