Preserving family farms is the focus of two new bills filed with the Illinois General Assembly that seek to update language in the Illinois Estate and Generation-Skipping Transfer Tax Act.
Democratic State Sen. Dave Koehler and State Rep. Sharon Chung last week filed identical pieces of legislation called the Family Farm Preservation Act in the House [4600] and Senate [2921] aimed at raising the exemption for family farm estates from $4 million to $6 million.
At a news conference Wednesday, both lawmakers said the change is meant to reflect the growing divide between farm estate valuations and how much money a farm actually makes. The disparity comes from the valuation of the farm estate that looks at the market price per acre of land — and not the income generated by the land.
About 96% of Illinois farms are family-owned. Data from the Illinois Department of Agriculture puts the estimated average size of farms at around 375 acres, although that figure does include hobby farms.
Farm operations around that size could pull in an income ranging from below or around $100,000 per year. But if that farm becomes an estate due to the death of its owner and operator, it could be taxed up to “almost $5 million,” said Koheler, leaving the remaining family members to figure out how to pay a sudden and large tax bill.
"This is Illinois' number one industry [valued at] $137 billion dollars," Koehler said at the news conference at the Illinois Farm Bureau [IFB] in Bloomington. "What's even more amazing is that this is an industry that's made up of family farm units. Why would we want to risk that being upset by having people have to sell the farm to pay the estate tax?"
The legislation seeks to raise the threshold by $2 million to put it more in line with the federal Real Estate Exemption for small businesses which, while currently much higher at $13.6 million, is expected to drop to $6 million by 2026. Only the dollars above that $6 million figure would be taxed.
The bills also contain provisions for inflation and tie the exemption amount to annual changes in the Consumer Price Index.
The changes only apply to estates eligible for agricultural special use valuation under federal rules. Those rules stipulate the majority of the estate’s value must come from the farm operation, and the family heir must continue to farm for at least 10 years.
"I've met a lot of farmers in my time on the [McLean] county board and especially this past year being a freshman legislator," said Chung. "A lot of the farmers I spoke with were young farmers — younger than I am. And they spoke to me about how they're so proud to be farming this land that has been in their family for generations. But the issue here of how the estate tax has been set up makes it really difficult for them to see how the farm will look in the future for their family."
The legislation has received bipartisan support, including from State Sen. Tom Bennett, a Republican whose district also includes part of McLean County, and Republican State Sen. Sue Rezin, among others — several of whom are current family farmers.
Rezin said the bipartisan support was "unusual" and noted that, to attend Wednesday's news conference, some of her colleagues "actually drove three hours to get here."
"It just tells you how important this bill is to all of us," she said.
The IFB has been, and plans to continue, championing the bill as well.
“Passing on the family farm is not just about continuing the business, it’s about preserving family heritage and a way of life,” IFB president Brian Duncan said in a statement. “Yet the current Illinois estate tax often forces families to break up the farm by selling land, livestock or even equipment every time the business passes on to the next generation. A death of a loved one should not be a death sentence for the family farm.”
Koehler said he expects “the big fight to be the budget,” since the bills do not include provisions for replacing any generated income for the state from the tax reduction.
“We’ll figure out what the price tag is — I think it will actually be lower than what people think,” Koehler said. “So, if this is a priority, we’ll find the room for it. And I think it should be a priority.”
