Archive for May 17th, 2009

The executor may elect to value real property devoted to farming or other closely-held business at its “current use” value rather than market value if certain conditions are met. The conditions are as follows:
1. The adjusted value of the farm or other closely-held business assets (assets minus debt) must comprise at least fifty percent of the decedent’s adjusted gross estate (assets minus debts).
2. At least twenty-five percent of the adjusted value of the gross estate must be qualified farm or other closely-held business real property.
3. The farm or other closely-held business must pass to qualified heirs.
4. The real property must have been owned by the decedent or a member of the decedent’s family and held for use as a farm five out of the last eight years preceding the decedent’s death.
5. The decedent or member of the decedent’s family must have materially participated in the operation of the farm or other business for five out of the last eight years immediately preceding the decedent’s death (or retirement or disability).
Special rules for decedents who are retired or disabled are as follows: The material participation has to be satisfied during periods aggregating five or more of the eight year period ending before the earlier of (1) the date of death; (2) the date on which the decedent became disabled; or (3) the date on which the individual began receiving Social Security retirement benefits, which continued until decedent’s death.
If the property was passed to the surviving spouse, he or she will be treated as having materially participated during periods when engaged in active management of the farm or business. The term “active management” means the making of management decisions of a business that is more than just the daily operating decisions.
The definition of a member of a family means only (a) an ancestor, (b) the spouse, (c) a lineal descendent of decedent or of decedent’s parents or of decedent’s spouse, or (d) the spouse of any lineal descendent described in (c) above. For purposes of the preceding sentence, a legally adopted child of an individual shall be treated as the child of such individual by blood. Lineal descendents of the decedent’s grandparents are no longer considered to be family members unless they are also descendents of the decedent’s parents. This means that aunts, uncles, nieces, nephews, and cousins are excluded.
6. The special valuation cannot reduce the decedent’s gross estate by more than $940,000 for 2007 and will be in- dexed for inflation in the future.
7. An election to specially value the property must be made on the other decedent’s estate tax return.
8. A written agreement must be signed by each person who has an interest in the property for which the special use is elected, stating that additional estate taxes will be paid if there is a premature disposition or cessation of qualified use of the property.
9. Special rules exist relative to standing timber.