Ameliorating the combined effects of federal-state death taxes on forest management continuity

The federal and state governments continually change and update their death tax laws. Forest landowners must not only know the law, but also be familiar with estate planning techniques that can substantially reduce their death tax burden. Estate planning techniques also minimize disruptions in forest management continuity. Various planning techniques are reviewed and illustrated for a hypothetical $3.5 million gross estate on which the death taxes in states representing the piggy-back, estate, and inheritance tax systems are calculated. Basic estate planning makes use of the unified transfer credit, marital deduction and equalization of the estate's value between spouses. The basic planning results are compared and contrasted with more sophisticated planning techniques including gifting programs, special use valuation, installment payments, minority discounts and conservation easement donations. Estates that adopted basic planning techniques experienced a death tax burden of 14 percent of the original gross estate, in present value terms. This averaged $501,000 through two deaths in the three selected states. Incorporating special provisions applicable to forestry reduced the taxes to 3.1 percent of the original, gross estate, in present value terms. These taxes averaged $110,000 in the selected states. For estates which fail to qualify for special forestry provisions, a conservation easement donation plus gifting reduces the present value of taxes to $195,000, corresponding to a tax burden of 5.6 percent of the original gross estate in present value terms.