THE EFFECTS OF FEDERAL AND STATE DEATH AND GIFT TAXES ON NONINDUSTRIAL PRIVATE FOREST LANDS IN THE MIDWESTERN STATES

This paper summarizes federal estate taxes and the death taxes of the 14 Midwestern states, with attention given to special provisions that apply to forestry and related land uses. Additionally, changes imposed by the 1997 Taxpayer Relief Act that must be considered in estate pla nning are introduced. A hypothetical family with a $3.5 million gross estate is followed through the death of both spouses, to show the effe ct of basic and advanced estate planning techniques in states selected to represent three different tax systems. Basic estate planning techn iques can reduce or eliminate federal and state death taxes on estates of $1.2 million or less in taxable value. Advanced estate planning te chniques, i.e., gifting, minority discounts, special use valuation, an d deferral and extension, can further reduce the death tax burden for larger estates. Use of advanced techniques reduced the present value o f federal and state death taxes on the hypothetical family by over 75 percent compared with basic techniques. In cases where an estate canno t meet the requirements for use of advanced techniques, donation of co nservation easements can be used to reduce the death tax burden. A con servation easement donation combined with gifting reduced the present value of death taxes on thr: hypothetical family by approximately 60 p ercent over basic planning techniques.