Update on Inheritance Tax Exemption
Posted: September 4, 2012
Following up to my last blog about the exemption of PA inheritance tax for forest landowners I have learned some more news.
1. The bill was written for for those in the 'business of agriculture.' Forest reserve and other ag uses were an add-on at the last minute. This what was added:
"A transfer of an agricultural commodity, agricultural conservation easement, agricultural reserve, agricultural use or a forest reserve, as those terms are defined in Section 2122(a), to lineal descendants or siblings is exempt from inheritance tax."
What this means is there is no detail as to whether the rules for 'working farms' apply to forest reserve lands.
2. The 'working lands' exemption requires it be transferred to a 'member of the same family.' This definition is quite broad to include parents and grandparents, brothers and sisters, aunts and great aunts, and uncles and great uncles of the deceased owner, as well as all ancestors and offspring of those persons mentioned and spouses. Adopted and half-blood members are also considered part of the same family.
3. It requires that the farm continue to generate at least $2,000/year in gross income for seven years or else they must pay the inheritance tax they would normally have paid, plus interest.
4. Since the Bill was passed, the Revenue Department has stated that the exemption will apply to forestland that meets the 'forest reserve' definition which is: "Land, ten acres or more, stocked by forest trees of any size and capable of producing timber and other wood products." Sound familiar - its the definition for Clean and Green enrollment, but forestland as far as we can tell does not need to be in Clean and Green to be exempt.
In summary, as far as we can tell forest landowners do not have to meet the income thresholds of $2,000/year. However it may have narrower stipulations as to what is 'family', since that paragraph in the Bill noted above states only 'lineal descendants or siblings.'
One basic question: Is it fair that forest landowners are exempt from the income threshold but farmers are not? That is why sources tell me they think the courts or further legislation will have to sort this out.