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

Supported by the 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,” IFB President Brian Duncan said. “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 an industry that is made up of family farms. … 96 percent 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?” Koehler said.

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.

State Rep. Charlie Meier (R-Okawville), a working farmer, shared examples of how the tax has impacted his own farming community.

“For decades, I have watched family farms get sold because they have to pay an inheritance tax. People think we are rich because we have this huge asset of farmland,” Meier said. “That’s not farmland to us. That’s a member of our family. That member of our family has taken care of our family for generations. That’s what this bill is about — future generations being able to farm that land, keeping America the cheapest fed nation in the world and keeping the family farm going.”

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 feasiblebut 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 portions of land 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 article co-authored by Schnitkey, the average farm size in Illinois is 1,300 acres, with farmers owning about 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, produces about only $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 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 at $13.6 million, but is scheduled to sunset down to approximately $6 million in 2026.

If either SB 2921 or HB 4600 is passed, it 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 percent of the gross estate, with 25 percent 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.

This story was distributed through a cooperative project between the Illinois Farm Bureau and Illinois Press Association. For more food and farming news, visit FarmWeekNow.com.