Financial and legal concerns are often cited by farmers as a barrier to farm succession planning. In a word – taxes.
In particular, federal estate taxes once loomed over U.S. farmers who wondered how they could efficiently pass farm assets to the next generation. However, today’s basic exclusion from the unified estate and gift tax credit has vanquished this threat for many farmers.
On July 4, 2025, U.S. lawmakers once again finalized a change in federal estate taxes for U.S. citizens and residents, increasing the basic exclusion for the unified estate and gift tax to $15 million per person in 2026 and future years. The impact will likely be even less farmers owing estate taxes in the near future.
What is the federal estate and gift tax?
When an individual passes away, everything that they owned and owed at death transfers to their “estate.” The estate is then subject to the federal unified estate and gift tax. This tax can apply at a rate as high as 40 percent and is paid by the estate (essentially, by the deceased individual).
What is the basic exclusion for federal estate and gift tax?
Before the estate’s taxes are finalized, there are deductions, exclusions, and credits to be applied. Perhaps most significantly, the basic exclusion for estate and gift taxes must be applied.
In 2025, the basic exclusion was $13.99 million. In 2026, the basic exclusion will be $15 million. The $15 million metric will continue to be adjusted for inflation for future years. The Internal Revenue Service (IRS) typically announces the upcoming year’s inflation-adjusted basic exclusion in fall.
In some ways, this unified estate and gift tax credit for estate and gift taxes is similar to the standard deduction for income taxes. The standard deduction for income taxes reduces the taxable income of an individual, in turn reducing the amount of income tax due. The basic exclusion reduces the taxable estate, in turn reducing the amount of estate tax due.
If an individual’s net worth (the total of all of the assets owned and liabilities owed by that individual) is less than the basic exclusion, there is unlikely to be a taxable estate, and thus no estate taxes due. This is a handy simplification for risk assessment, but it is still important to consult tax advisors for certainty.
What if an individual is married?
Each individual has a basic exclusion for the unified estate and gift tax credit. That means each spouse of a married couple has this basic exclusion.
In addition, a deceased individual who was married at the time of death may be able to claim an unlimited marital deduction if the surviving spouse is a U.S. citizen. Generally, a deceased individual can transfer their estate to their surviving spouse with no estate tax due, and no basic exclusion “used up.”
Even further, the estate can elect “portability” of their Deceased Spouse Unused Exclusion (DSUE). Electing portability transfers the unused basic exclusion to the surviving spouse, allowing them to “add” the unused basic exclusion to their own basic exclusion when they pass away.
Even if assets are not transferred solely to the surviving spouse using the marital deduction, the estate can still elect “portability” for any unused basic exclusion to be preserved for the eventual death of the surviving spouse.
What has changed?
The latest change on July 4, 2025, as part of the One Big, Beautiful Bill Act, was to increase the basic exclusion to $15 million per person. Prior to the change, the $13.99 million exclusion was set to decrease to about $7 million per person in 2026. The new law made the $15 million change permanent (unless or until Congress changes it).
Changes of this type are not new, but they may change estate planning. As recently as 2008, the basic exclusion was only $2 million per person. From 2011 to 2027, the basic exclusion was $5 million, adjusted for inflation. Portability was introduced in 2011 and made permanent in 2013. Changes can be confusing, so it is important to work with attorneys, accountants, and advisors for guidance in estate planning.
While the increased basic exclusion will ease estate tax worries for many farm families, it is still vital to plan early and often for farm transition.
Kelly Wilfert is the Farm Law Outreach Specialist for the Division of Extension at the University of Wisconsin-Madison
This article originally appeared on Wisconsin State Farmer: Changes in federal estate taxes will help farmers pass farms on to the next generation
Reporting by Kelly Wilfert / Wisconsin State Farmer
USA TODAY Network via Reuters Connect
