Estate Planning for Landowners
Here in Western Massachusetts, it is not unusual for clients to own land that has been in their family for many generations. Land can have significant monetary or sentimental value, and by its nature is immovable. These characteristics mean that estate planning for landowners often poses special challenges.
Monetary Value. The value of the land at death may give rise to the imposition of estate taxes, which are based on its date of death value. In Massachusetts if you die with a taxable estate of more than $1 million, the entire estate is subject to the estate tax at rates that max out at 16% for large estates. You will owe Federal Estate Taxes equal to 40% of the amount by which your taxable estate exceeds the sum of $5.45 million (in 2016) plus, if your survive your spouse, your spouse’s unused Federal Estate Tax exclusion amount. The expression “land rich, cash poor” is particularly apt for landowning families who may find their forests or farmland valued more highly than expected. Estate tax value is based on the “highest and best use” of the land at death. A hundred acres of land used for farming may have as its highest and best use a commercial or residential development. While this may be the furthest thing from your mind or the thoughts of your family, the value is determined by a qualified appraisal, and estate taxes determined based on that value. You may not have adequate liquid resources to pay for the taxes, and your heirs may be face a difficult decision. Moreover, especially when valued for estate tax purposes, land may represent a disproportionate portion of your total estate.
Sentimental Value. Land that has been in a family for dozens, or hundreds, of years, often has great and deep meaning for family members. It may be where the family farm has been, it may be the woods in which generations have worked and logged, or it may be land where the family has camped, hunted, hiked and explored, with a love for the land being passed down from parents to their children. This means that it may be of primary importance to plan on how to keep the land in the family. Selling some of the land to raise money to pay estate taxes is almost universally unpopular. That said, it is common for family members to have differing visions for the future of the family land, including conservation, development, sale or new uses.
Location. Land stays where it is, while families may not. Grown children move away more often than they used to. It is not at all uncommon to find a family struggling to determine how to deal with the fact that no children live nearby, or how to be fair when not all of your children wants to stay near or on the land or to make use of it.
Coming up with a plan can mean facing some hard questions, and the senior generation may shy away from dealing with the issue in advance. Unfortunately, the absence of a plan can mean that heirs face even harder questions, exacerbated by time pressures.
Estate planning begins by looking at your assets. As estate planners, we can help you understand what issues are posed by the composition of your assets, whether estate taxes will be imposed and how to mitigate or avoid those taxes. We can help outline some options to consider regarding your land, which could include conservation restrictions, family entities such as limited liability companies, and options for gifting or selling interests in the land, including utilization of trusts.
Estate planning for landowners can also begin by having family conversations about the next generation’s vision for the land. While these conversations can be difficult, you may well find it illuminating to hear the varying opinions, and to use them to help guide how you develop your plan.
A wonderful resource for landowners is at www.masswoods.net , a site maintained by UMass Amherst, which has helpful entries on deciding the future of your land, learning about land conservation options, and on finding professionals, such as land trusts, CPAs, appraisers, and attorneys. While its focus is on woodlands, much of the information is relevant for any landowner in Massachusetts.
The most important thing to do is to get informed and get started.