Will Your Family Farm Have to Pay the Death Tax?
When people talk about the “death tax,” they usually mean the federal estate tax. But here’s the reality for most farm families: very few estates actually owe federal estate tax, and most states don’t have a separate inheritance tax at all. That means the only “real” death tax most farmers will ever encounter is the federal estate tax — and even then, only if the estate is very large.
Too often, farmers focus on whether the farm will trigger estate taxes instead of planning for the things that really matter, like revocable trusts, LLCs, buy‑sell agreements, and clear succession documents. Getting these basics in place makes transferring your farm to the next generation smoother and less stressful.
What Is a Gross Estate?
Your gross estate is essentially everything you own at the time of your death, including:
Your farm and farmland
Homes and other real estate
Bank accounts, retirement accounts, and investments
Life insurance policies (in some cases)
Business interests
Even if your property is held in a revocable trust or an LLC, it still counts as part of your gross estate for federal estate tax purposes. These structures do not remove the property from your estate. The IRS values land at its fair market value (FMV), not based on any state-specific exemptions, reduced assessments for farmland, or senior property tax relief programs.
Example of a Gross Estate Calculation:
Suppose a farmer owns:
Farmland worth $5 million
A home worth $500,000
Retirement accounts totaling $400,000
Life insurance payable to their estate of $100,000
The gross estate would be $5,000,000 + $500,000 + $400,000 + $100,000 = $6,000,000. This is the value that will be considered when determining whether the estate exceeds the federal exemption.
The Federal Estate Tax Exemption
Once your gross estate is determined, the IRS allows you to subtract a federal estate tax exemption. This exemption shields a portion of your estate from taxes. For 2026, the exemption amounts are:
$15 million per individual
$30 million for a married couple
So, if your gross estate is below these amounts, you won’t owe any federal estate tax. If your estate exceeds the exemption, the excess may be taxed at the federal rate. This exemption is combined with the lifetime gift tax exemption.
Annual Gift Tax Exclusion
Before we get into the annual gift tax exclusion, it’s worth noting: giving away property during your lifetime can have long-term consequences. For example, giving land away before death can affect the “step-up in basis” that heirs receive, which may increase capital gains taxes if they sell later. We’ll cover this more in a future article.
The federal government allows you to give certain amounts each year without affecting your exemption. For 2026, the annual gift tax exclusion is $19,000 per recipient. Married couples can effectively double this to $38,000 per person.
Gifts within these limits:
Do not reduce your lifetime estate tax exemption
Do not trigger gift taxes
Do not require filing a gift tax return
Why Giving Land to Your Kids Before You Die Can Be Risky
Many families think giving land to children while they’re alive will avoid estate taxes. In reality:
Gifts above the annual exclusion reduce your lifetime exemption, meaning less protection for your estate later.
Giving property too early can create new tax problems instead of solving them.
Careful planning is usually better than trying to “get ahead” of estate taxes.
How Estate and Gift Taxes Work Together
The federal estate tax and federal gift tax are part of a single unified system. Lifetime gifts above the annual exclusion count against your estate tax exemption. Large gifts made during life reduce the amount of your exemption available at death.
This is why planning without understanding these rules can backfire — it’s not just the gift itself but how it affects your overall estate plan.
Will Your Farm Owe the Death Tax?
Let’s return to our example: the farmer owns farmland worth $5 million, a home worth $500,000, retirement accounts totaling $400,000, and life insurance of $100,000, for a total gross estate of $6 million.
Assuming this farmer is married, the combined federal estate tax exemption for the couple in 2026 is $30 million. Even with all assets counted, his estate falls well short of the exemption, so no federal estate taxes would be owed.
Even if estate tax isn’t a concern, you still need a plan:
Revocable trusts to avoid probate
Clear succession planning documents
LLCs or other structures for governance and continuity
Buy‑sell agreements (if your farm has partners)
Powers of attorney and healthcare directives
These are the foundations of a solid farm succession plan. Estate tax worries are secondary if you don’t have these basics in place.
When to Talk to a Lawyer
If your estate approaches or exceeds the exemption, it’s wise to talk with an attorney experienced in estate and tax planning. My firm can:
Handle the personal, family-specific planning — trusts, LLCs, succession documents, and transfers
Connect you with larger firms for complex estate tax issues when necessary
This ensures your farm gets personalized attention while also addressing the technical tax side.
Bottom Line
Most farm families will not face the federal estate tax. Focusing too much on “death taxes” without having your succession plan in place is like worrying about icing before the cake is baked. The real priorities are trusts, LLCs, succession documents, and powers of attorney — and having clear family communication.
Next Steps & Resources
If this article helped clarify things for you, I encourage you to check out my social media pages. I share practical succession planning tips, explanations of trusts, LLC strategies, and farm planning examples. I hope these posts give you a better sense of how I approach farm families and their goals.
When you’re ready, I’d love for you to send me a message through my website so we can discuss your farm and explore what a succession plan could look like for you. Your family and farm deserve a plan that works — and it starts with the right conversation.