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What We're Working On» March 2024

Legislation introduced to change Illinois estate tax

03/02/2024 @ 7:25 am | By By Erin Henkel, FarmWeek

New bipartisan measures aimed at ensuring the preservation of family farms in the event of a family member’s death were announced after years of attempting to reform the Illinois Estate and Generation Transfer Tax Act.

Supported by Illinois Farm Bureau, Senate Bill 2921, introduced by State Sen. Dave Koehler, D-Peoria, and House Bill 4600, introduced by State Rep. Sharon Chung, D-Bloomington, are identical bills that if passed would change the state’s estate tax, specific to farms.


“Illinois Farm Bureau is proud to support the Family Farm Preservation Act because our policy supports the preservation of family farms and this is a bipartisan effort to keep farm families on the family farm,” said Brian Duncan, IFB president. “We are grateful and excited to see members from all four caucuses (lend their support for the legislation).”


The measures are aimed at addressing the discrepancy between escalating farm estate evaluations and annual farm income.


“This is a historic day, we’ve got some legislation before us that really is long overdue,” Koehler said during a press conference at the Illinois Farm Bureau headquarters in Bloomington. “This is an industry that is made up of family farms … 96% of farms are family farms, so why would we risk that from being upset by people having to sell the farm to pay their estate tax.”


Chung said after a fall spent on combine rides with farmers, she learned the estate tax is a top concern.

“We’re really doing this to help bring a lot of relief to family farms and make sure that family farms stay within families,” Chung told RFD.


Currently, any estate in Illinois with a gross value of $4 million after inclusion of taxable gifts, is taxed in its entirety using a complex formula and is subject to a graduated state estate tax.


While farm estate evaluations cross the $4 million threshold, they do not reflect financial reality for farm families in the state, according to Gary Schnitkey, professor of farm management at the University of Illinois.


“To get that transferred from this generation to the next generation, they are going to owe a sizable chunk of tax to the state of Illinois,” Schnitkey told FarmWeek. “It’s feasible but they are probably going to have to go into debt to do it. They aren’t going to have the cash outstanding. … They are going to have a new debt payment on that land.”


To continue farming on their family farms, many farm families must make the decision to go into debt or sell off portions of the farm or equipment, leaving farm families without the assets necessary to sustain their livelihoods and provide for their families.


“It increases the incentive to sell the farmland to settle the estate tax, so you don’t have to come up with the funding to do it because there’s no other liquid assets in the estate,” Schnitkey said.


According to a recent farmdoc article co-authored by Schnitkey, the average farm size in Illinois is 1,300 acres, with farmers owning around a quarter of the land, or 325 acres, with an average annual income of approximately $100,000.

The estate valuation for 325 acres would be $4.875 million, based on the average market price of $15,000 per acre. The land would generate a tax liability of $250,000. The 325 acres, however, only produces about $25,000 of income.


Without including the values of farm infrastructure, equipment or the homestead, which are also evaluated under the estate tax and generate additional tax liability, the family is left paying taxes 10 times the income generated by their ground.


Schnitkey said the $100,000 estimate is still above average due to record high years in 2022 and 2023, when prices were influenced by conflicts overseas. He said he is anticipating incomes to drop back down to around $70,000 to $80,000 annually.


Schnitkey said the estate tax is becoming a “bigger deal” due to large increases in land prices and said he thinks the exemption should be increased to reflect inflation.


Furthermore, Illinois’ $4 million threshold lags the federal estate tax exemption, which is currently at $13.6 million, but is scheduled to sunset down to approximately $6 million in 2026.


If either SB 2921 or HB 4600 are passed, they would reform the current state tax for farm estates only, by changing the tax exclusion to a true exemption, and raising it from $4 to $6 million. Only dollars over $6 million will be taxed under the exemption.


In addition, the measures tie the new $6 million exemption level to inflation and will be adjusted each year according to the increase in the Consumer Price Index.


The measures would also allow portability between spouses at the state level, a benefit allowed under the federal estate tax; meaning a surviving spouse can use the unused estate tax exemption of a deceased spouse plus their own exemption when they die.


The measures are limited to agriculture, by coupling the changes to only those estates that are eligible for agricultural special use valuation under federal Internal Revenue Service rules.


The farm must make up at least 50% of the gross estate, with 25% of the estate value being the farmland. Additionally, the farm must be farmed by the deceased or family member for five of the previous eight years prior to the deceased’s death, and the surviving family must continue farming for 10 years.

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