The 137th Preakness Stakes will be run in Baltimore on May 19th. Thousands of spectators will descend upon Pimlico Race Course to watch 12 thoroughbred horses race the track. But few will wonder, where do the race horses reside when they are not racing?
In Maryland, horse farms occupy over 200,000 acres of farmland, according to Marylandthoroughbred.com. In the 2012 legislative session, the Maryland General Assembly passed Senate Bill 294 and House Bill 444, the Family Farm Preservation Act, which will help ensure that family owned farms of all types do not need to be sold to pay estate taxes.
Because the Maryland state level estate tax is $1,000,000, upon the death of the owner of a farm there is the possibility that the liquid assets (bank accounts, retirement accounts, life insurance, etc.) of a farmer’s estate will not be enough to cover the estate tax bill. If the liquid assets are insufficient, the family will often have to sell the illiquid assets, such as the farm, to pay the tax collector.
The Family Farm Preservation Act aims to amend the state estate tax law to exclude up to $5,000,000 of real or personal property used primarily for farming purposes. In addition, any agricultural property valued in excess of $5,000,000 will be taxed at a reduced rate of 5%.
A note of caution exists. If the agricultural property is not used for farming purposes for at least 10 years after the date of death, the state will recapture the estate tax owed. This means that any property valued over $1,000,000 that was not taxed will be taxed at the current Maryland estate tax rate of 16%.
The Family Farm Preservation Act has not yet been signed by Governor Martin O’Malley, but the Governor will be conducting a bill signing on May 22, 2012.
If you or your family has further questions about the Family Farm Preservation Act or how you can have a tax-efficient transfer of wealth upon your death, please contact the Law Office of Jane Frankel Sims at (410) 828-7775.