The vast majority of Americans don’t pay estate taxes because their gross taxable estate falls below the standard exemption. However, remember that land can be a particularly valuable asset — and one that’s likely to change in value over time.
Land protection may reduce the value of your land… which in turn reduces the value of your estate and may reduce your federal estate tax and state inheritance tax.
Especially if your total assets approach $5 million or more, the possibility of being subject to estate tax rates as high as 40 percent can be a compelling reason to consider land protection.
Because tax rules are always subject to change, professional advice and planning are recommended. You may want to discuss these general topics with your professional advisers.
Charitable gifts
Gifts to qualified charities are subtracted from your estate value before the taxes are computed. This includes charitable bequests of land for conservation purposes.
Land protection within the estate
Heirs may consider donating a conservation easement or land for conservation while land is held in the estate — after the death of their loved one but before the estate tax return is filed. Besides the potential estate tax benefits or income tax benefits to the estate, this can be a wonderful joint action of the heirs in honor of the deceased landowner or other family members who have, in effect, provided this land legacy and protection opportunity to the heirs.
State inheritance taxes
Unlike federal estate taxes, which are paid by the estate, Iowa’s inheritance tax is paid by the beneficiary. These tax rates are based upon the relationship of the beneficiary to the deceased, with no inheritance tax due from spouses and direct lineal descendants or ascendants (i.e. children, grandchildren, parents). Heirs who are not part of your direct family line, such as friends or nieces/nephews, may face Iowa inheritance taxes. If conservation protections reduce your estate’s value, it may in turn reduce your heirs’ inheritance taxes.
In some cases, inherited land can be donated to a state or county conservation agency in lieu of paying Iowa inheritance tax. Read more.
Learn more about Estate and Financial Planning involving land.