Estate Tax: Potential Repeal Amid a Looming Tax Hike

Right now, every American has an estate tax exemption of $13.99 million. That means you can pass up to $13.99 million worth of assets tax-free either during your lifetime or at death.

However, this historically high exemption is set to expire on December 31, 2025. Without new legislation, it will automatically be cut in half, dropping to roughly $7 million per person on January 1, 2026.

If your estate is worth more than that, your heirs could be hit with a 40% federal estate tax on any amount above the exemption.

What This Means for Farmers

If your farm is worth $10 million today, you’re not currently facing federal estate tax issues. But in 2026, you would have a $3 million taxable estate at the federal level. At a 40% estate tax rate, that’s a $1.2 million tax bill—before considering state taxes.

This is why a new bill has been introduced in Congress to repeal the federal estate tax entirely. While it’s uncertain whether this will pass, it highlights the growing debate over how estate taxes affect family farms.

? Minnesota’s Estate Tax: A Push for Repeal

Meanwhile, Minnesota lawmakers have introduced a bill to completely repeal the state’s estate tax.

Currently, Minnesota’s estate tax exemption is $3 million per person. However, qualifying farmers can get an additional $2 million deduction, giving them up to $5 million of protection—but this exemption hasn’t increased in years and isn’t tied to inflation.

With land prices in southern Minnesota hitting $13,000+ per acre, it’s easy to see how even an average-sized farm could be subject to Minnesota’s estate tax.

How Minnesota’s Estate Tax Compares to Neighboring States

Minnesota is increasingly an outlier when it comes to estate taxes:

✅ Wisconsin – No estate tax
✅ Iowa – Phasing out estate tax
✅ South Dakota & North Dakota – No estate tax
❌ Minnesota – $3M exemption ($5M for qualifying farms)

If this new Minnesota estate tax repeal bill passes, it would bring Minnesota in line with surrounding states and eliminate estate tax concerns for many family farms.

? The Reality: More Farmers Will Be Hit with Estate Taxes

A recent USDA report estimated that if the federal estate tax exemption drops to $7 million, the number of farms subject to estate taxes will triple.

Why? Because farmland values have skyrocketed in the past few years, but farm incomes have not kept pace. Farmers are asset-rich but cash-poor, meaning estate taxes can force heirs to sell land just to pay the tax bill.

Farming requires significant capital investments, from land to equipment, but the return on investment is typically small. With estate taxes cutting into those assets, the next generation of farmers could spend decades just paying off estate tax liabilities—or worse, lose the farm entirely.

? What Should You Do Now?

Even if these proposed repeals pass, it’s crucial to have a strong estate plan in place to protect your farm and minimize tax exposure. Here are some key steps:

1. Assess Your Estate’s Value – Don’t rely on tax statements—take a realistic assessment of what your farm is worth based on estimated appraised land values and total estate worth.
2. Consider Gifting Strategies – You may want to start transferring assets strategically before 2026 to take advantage of today’s higher exemptions.
3. Utilize Farm Succession Planning – If you plan to pass your farm to the next generation, ensure your estate plan protects against excessive taxation.
4. Explore LLCs & Corporations – These are not just for big businesses—proper structuring can help protect family farms from estate tax burdens.
5. Stay Informed – With estate tax laws potentially changing at both federal and state levels, staying updated is crucial.

? Plan Now to Protect Your Farm’s Future

Estate taxes have major implications for Minnesota farmers. Whether the federal exemption drops or Minnesota’s tax is repealed, the key to protecting your farm is proper planning now.

At Wagner Oehler, Ltd., we work with farmers on their estate plans and farm plans every day.

? Schedule a consultation today to ensure your farm is protected for the next generation.

? Visit WagnerLegalMN.com to learn more and get started.

To learn more about farm succession and estate planning, keep an eye on our Events page located at: https://www.wagnerlegalmn.com/events/.

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