Family Farms to be Exempted from Estate Tax?

The federal estate tax is applied to property as it passes from one generation to another.  Family farms have always been uniquely affected by the tax, as the family may have vast and valuable land holdings, but not much in way of liquid assets.  This can result in the property needing to be sold or mortgaged to pay the estate tax.

Legislation has been introduced in the House of Representatives that would exempt farms from the federal estate tax so long as the farm property passed to a family member and continues to be used as an agricultural operation (HR 3524).  It would also exempt land subject to a qualified conservation easement from the estate tax.

This bill make sense in that it is akin to section 1031 of the Code where if you sell real estate and buy different real estate it is not a tax realization event, as you are still invested in real estate.  Here, so long as you remain a family agriculture business, a death would not be a tax realization event.  Instead, the tax would be deferred until the property is sold or the agricultural business stops.  This makes sense from a timing standpoint as the timing of the tax would be when the dollars would be realized - you have cash, you can pay cash.  The question is, will a sensible proposal become law?  

To get a farmers perspective look to Estate tax proposal would help farm families from the California Farm Bureau Federation.