With Rising Land Values, Will Your Estate Plan Keep the Family Farm Safe?

Climbing land values and the potential sunset of the historically high estate tax exemption could put many farming families directly in the crosshairs of the estate tax. Revisit your estate plan now to prepare for these converging forces and protect the family farm.

USDA Report: Land Values Continue to Rise

U.S. farm real estate value (which includes all land and buildings on farms) averaged $4,170 per acre in 2024, an increase of more than one-third since 2020, according to the USDA’s annual report on agricultural land values.

On the upside, the steady increase in land values highlights the health of the U.S. farm economy. Throughout history, U.S. farmland values have typically increased in value from year to year, with the exception of a handful of time periods that coincided with financial crises.

Future of the Estate Tax Uncertain

Throwing a monkey wrench into farm families’ long-term planning is uncertainty about the future of the estate tax exemption. Since it was doubled in 2018 to more than $11 million per person, very few farming families have had to worry about the estate tax. As things stand now, the heightened exemption will stay in place through the end of 2025, when it is scheduled to drop back down to its baseline of $5 million, adjusted for inflation.

Amid all this uncertainty, what can farming and ranching families do to mitigate the possibility that the next generation will have to sell off some or all of the farm to pay estate taxes after you’re gone? Revisit both your personal estate plan and succession plan for the closely held businesses that you control.

Farm Succession Planning vs. Estate Planning: Which Do You Need?

Many people believe the terms “succession planning” and “estate planning” are synonymous. In fact, they are two very different but equally important types of planning for the benefit of future generations. Farming families need both.

Estate planning involves strategies to protect all of the assets in your estate — including ownership interests in closely held businesses. Succession planning relates specifically to plans and protocols put in place to make the transition of the business itself go as smoothly as possible.

How to Get the Ball Rolling

The following steps will help you and your heirs achieve your goals and get the most value out of all your assets, including the farm and any other businesses that you own:

Know your assets — all of them.

Planning for a successful transfer of wealth starts with knowing what you’ve got, so make a list of all your personal assets. Most people are used to providing details on their income-producing assets each year for tax-reporting purposes. But for estate planning, you will need to get your arms around all of your assets — including those that don’t generate income. For example, in addition to the primary farm or ranch, you likely own another parcel or two of land, perhaps a second house, and tangible assets such as collectibles and jewelry.

At this stage, there’s no need for a formal valuation of your assets. However, coming to the table with a general idea of their approximate value will make the estate planning discussion go much more smoothly.

Bring everyone to the table.

Both estate planning and succession planning are done for the benefit of future generations, so involve everyone who has an interest in the long-term plan. In addition to on-farm family heirs, don’t forget family members who might be hands-off today but have expressed a desire to return to the family farm “one day.”

Reluctance to bring in professional help is one of the biggest downfalls we see with farming families. Your team should include knowledgeable advisors, including an accountant and attorney with estate, gift, and trust expertise. Depending on your situation, your team might also include a financial planner with expertise in estate plans.

Create a long-range plan that considers the needs and goals of the family as a whole.

Bring key family members to the table with your professional advisory team to discuss the needs and goals of the family as a whole, starting with your own. Do you want to transfer the farming operation to your children during your lifetime? If you plan to retire, what are your goals for retirement? Do you want money to travel?

Next, consider the needs and desires of your heirs. Do any of your kids (or grandkids) want to take over the farming operations? If they’re ready now, is it time to start transferring pieces of the land or the business, or both?

If no one in the family wants to take over the farm, do you plan to lease the land out during your lifetime and let the kids sell it upon your death to take advantage of the step-up in basis? Keep in mind that higher land values combined with a lower estate tax exemption can make that strategy risky, since family members who inherit large farms and ranches could face a devastating tax liability, forcing them to sell parts of the land just to pay the tax bill.

What are your options to take the tax burden off the next generation? One approach involves entity planning to take advantage of valuation discounts.

Entity Planning Is Key to Farm Valuation

Value is a funny thing. Most of us want to believe our assets have high value. But for estate planning purposes, we need to be able to discount the value of those assets so that our heirs aren’t stuck with a large tax bill.

Land is valued using recent sales of comparable property. As we discussed above, land values are high and likely to continue climbing. Although valuators of farmland can take advantage of a special use valuation — which allows them to appraise the land based on its agricultural use rather than the value it would have on the open market — the provision has strict rules and limitations. The maximum adjustment under the special use valuation is currently around $1.4 million, only marginally higher than when it was introduced more than two decades ago.

Whereas land valuations typically use comparative sales, business valuations are held to a different standard: fair market value, or the price at which the business would change hands between a willing buyer and seller, neither being under any compulsion to buy or sell and both having reasonable knowledge of relevant values. In business valuations of closely held entities, certain circumstances are used to “discount” the value of the business, such as lack of marketability (which considers the uncertainty of selling an interest in a private company versus a publicly traded company) and lack of control (also known as minority interest). Valuators of farms and ranches can often justify taking even greater discounts for these factors than other closely held businesses, since farming families typically have a strong desire to keep the business in the family.

Act Now to Protect Your Land and Family Business

It’s never too early to start planning for your legacy. Now is the time to put a plan in place to protect both your family land and the family business that depends upon it. Right now, you may have plenty of options to protect the value of your assets — from entity structuring to funding trusts and education savings plans. But waiting can have severe consequences. Reach out to CRI’s estate planning advisors today. No matter the size of your farm or ranch, we will work with you to design a plan that suits your needs.