Smart Estate Tax Strategies for Nebraska Farmers

Why Estate Tax Planning Matters for Nebraska Farmers

For Nebraska farm and ranch families, the farm is more than a business; it is land, legacy, and livelihood. Rising land values, expensive equipment, and tight cash flow can create a situation where a taxable estate looks rich on paper but short on liquid assets.

Without appropriate planning, heirs may be forced to sell land or equipment to cover taxes, debts, or administrative expenses. Thoughtful estate planning is aimed at:

• Preserving the family operation for the next generation
• Managing or reducing potential federal estate tax exposure
• Addressing Nebraska inheritance tax considerations
• Providing fair, not necessarily equal, treatment of farming and non-farming children
• Avoiding unnecessary disputes, delay, and expense in probate

Because farm operations, family dynamics, and tax laws are all complex and change over time, strategies that work for one family may not fit another. A customized, regularly updated plan is essential.

Understanding Federal Estate Tax and Nebraska Inheritance Tax

Nebraska does not impose a state-level estate tax, but federal estate tax can apply to larger estates, and Nebraska counties administer an inheritance tax that can affect farm families in significant ways. For current Nebraska inheritance tax provisions, see Nebraska Revised Statutes, Chapter 77 (Revenue and Taxation). For an overview of the federal estate tax system, see the IRS Estate Tax overview.

Key concepts for Nebraska farmers include:

• Federal estate tax threshold: Estates over a federal value threshold may owe estate tax. This threshold and the applicable tax rates are set by federal law and have changed over time. Congress can and does adjust these rules, so farmers should stay informed and review plans periodically in light of the law in effect at the time.
• Taxable estate vs. gross estate: The federal system generally starts with the total value of the decedent’s assets (including land, equipment, stored grain, livestock, business interests, life insurance in some cases, and more) and then applies deductions and exclusions to arrive at a taxable estate. How property is titled and how beneficiary designations are structured can significantly influence this calculation.
• Nebraska inheritance tax: Nebraska counties administer an inheritance tax based on the relationship of the heir to the person who died. Certain closely related heirs may benefit from lower tax rates or higher exemptions, while more distant relatives or non-related beneficiaries can face higher tax. Counties must apply standards set by state law, but specific calculations are made at the county level under Chapter 77.
• Probate vs. non-probate property: Some assets pass through probate (for example, property owned solely in the decedent’s name), while others pass directly to beneficiaries (for example, payable-on-death accounts, life insurance with named beneficiaries, or assets titled in trust). Both types of assets can count for tax purposes, even if they follow different legal paths.

Understanding how these systems interact allows you and your advisors to structure ownership and transfers to meet both tax and family goals.

Valuing Nebraska Farmland and Farm Assets for Estate Planning

Nebraska farm estates often face estate tax risk not because of cash on hand, but because of the value of land and operating assets.

Issues to consider when valuing a farm estate include:

• Farmland appreciation: Land that was purchased or inherited decades ago may be worth many times its original cost. Assessed values, fair market values, and income-based values can all differ, so professional valuation is often useful.
• Special use and valuation discounts: Federal law can, in some circumstances, allow farm property used in an active family farming business to be valued in a way that reflects its agricultural use, rather than its highest potential development value. In some structures, properly documented minority interests and lack-of-marketability factors can also influence valuation within the limits of federal tax rules.
• Machinery, equipment, and livestock: Tractors, combines, irrigation equipment, grain bins, and breeding livestock can add significant value. An updated asset list, with serial numbers and approximate values, helps your planning team understand the size of your estate and implement strategies ahead of time.
• Grain inventories and growing crops: Unsold grain and growing crops can also have value at death. Depending on your business structure and accounting methods, these may be treated as income, part of the estate, or both for different purposes.

Because valuation issues are technical and highly fact-specific, most farmers benefit from involving appraisers and tax professionals early in the planning process.

Keeping the Farm in the Family: Succession vs. Simple Inheritance

Effective planning for Nebraska farmers is not just about who gets what; it is about who will run the farm and how.

Key distinctions include:

• Succession planning focuses on management and control of the farm operation: who makes decisions, who has day-to-day authority, and how ownership and leadership will transition over time.
• Estate planning focuses on legal transfer of assets at death: who receives land, machinery, livestock, bank accounts, and other property.

For many farm families, it is not practical or desirable to divide land equally among all children if only one or two are actively involved in the operation. Common approaches include:

• Giving on-farm heirs a controlling interest in operating entities and certain tracts of land
• Providing non-farming heirs with off-farm assets, life insurance proceeds, or specific parcels less important to the core operation
• Using options and buy-sell arrangements so active farmers can buy out others over time

Aligning succession and estate plans reduces conflict and helps ensure that federal estate tax and Nebraska inheritance tax are addressed in a way that supports your long-term vision for the family operation.

Using Trusts to Protect Farmland and Manage Tax Exposure

Trusts are flexible tools that can help Nebraska farmers manage tax exposure, protect land, and provide structure for future generations.

Common ways trusts are used in farm estate planning include:

• Revocable living trusts: Often used to avoid or minimize probate, provide privacy, and make administration more efficient. While a revocable trust generally does not reduce federal estate tax by itself during your lifetime, it sets the stage for more sophisticated planning at the first and second spouse’s deaths.
• Marital and family (credit shelter) trusts: Married couples can often structure their plan so that each spouse’s estate more fully uses the available federal estate tax exclusion. When one spouse dies, some assets can pass to a surviving-spouse trust with tax advantages, while other assets may be directed into a family trust that can benefit the surviving spouse and descendants within federal limits.
• Generation-skipping and multi-generation trusts: For families who want land to benefit children, grandchildren, and beyond, these trusts can help pass value across generations while managing federal transfer tax exposure under current law.
• Farmland preservation or no-sell provisions: Trusts can be drafted with provisions that make it harder to sell core tracts of land, or that require certain buy-out or right-of-first-refusal procedures. These provisions must be carefully tailored to avoid unintended tax or financing problems.

Trust-based strategies must be coordinated with deeds, entity ownership (like LLC units or partnership interests), and beneficiary designations to be effective.

Entity Structures: LLCs, Partnerships, and Corporations in Farm Planning

Many Nebraska farm families use business entities not only for liability protection and operational efficiency, but also as part of their long-term estate and tax strategy.

Common structures and their roles include:

• Limited liability companies (LLCs): Often used to hold farmland, equipment, or the operating business. LLC membership interests can be gifted or sold over time to on-farm heirs. Properly structured, they can assist with management continuity, gradual ownership transitions, and certain valuation planning.
• Family partnerships: Similar in concept to LLCs, but under partnership law. They can be used to centralize ownership of land and equipment while allowing different family members to hold varying interests.
• Farm corporations: Some older operations are still held in C-corporations, while many newer operations choose S-corporation status. Corporate stock can be transitioned over time, but care is needed to avoid negative income tax effects or loss of S-corporation eligibility.

Potential benefits of using entities in your estate plan include:

• Keeping land together under one legal owner while separating economic interests among children
• Providing a clear framework for voting vs. non-voting interests (control vs. economic benefit)
• Establishing buy-sell provisions that determine what happens if an owner dies, divorces, or wishes to exit

Entity-based strategies must be designed with both income tax and estate/inheritance tax consequences in mind. Poorly structured changes can create unexpected capital gains, loss of special tax treatment, or financing issues.

Gifting Strategies and Lifetime Transfers

For some Nebraska farm families, transferring portions of the operation during life can reduce potential future transfer tax exposure and ease the transition for the next generation.

Common lifetime strategies include:

• Annual exclusion gifts: Federal law allows individuals to give up to a certain amount to as many people as they wish each year without triggering federal gift tax. This can be used to gradually shift ownership of LLC units, partnership interests, or other assets to children and grandchildren.
• Using part of the federal lifetime exemption: Larger gifts can be structured to intentionally use some of your federal lifetime transfer tax exemption. This may be attractive for land or entity interests expected to appreciate.
• Transferring management responsibility early: Even when legal ownership is not yet transferred, sharing day-to-day management and decision-making authority with the next generation prepares them to run the operation and can reveal issues that should be addressed while the senior generation is still available to advise.
• Sales to family members or trusts: In some cases, sales, rather than outright gifts, can be used to transfer the farm while providing income to the older generation. These transactions are complex and require careful attention to valuation, documentation, and tax reporting.

Before making significant gifts or sales, farmers should understand interactions with federal estate and gift tax rules, Nebraska inheritance tax, basis planning for income tax purposes, and their own retirement income needs.

Life Insurance as a Farm Estate Planning Tool

Life insurance can be an important tool for Nebraska farm families, particularly where a land-rich, cash-poor estate may otherwise put pressure on heirs to sell assets.

Possible uses include:

• Providing liquidity for taxes and expenses: Insurance proceeds can give heirs the cash they need to pay federal estate tax, Nebraska inheritance tax, debts, or equalization payments without selling farmland or key equipment.
• Equalizing inheritance between on-farm and off-farm heirs: If farmland is left to children who work in the operation, life insurance can be used to provide value to non-farming children.
• Funding buy-sell agreements: When the farm is held in an entity, insurance can fund agreements that allow surviving owners or the entity itself to buy out the interest of a deceased owner at a predetermined formula price.

Policy ownership and beneficiary designations should be aligned with your overall estate plan. In some cases, an irrevocable life insurance trust may be used to keep policy proceeds outside of your taxable estate, depending on timing and structure.

Coordinating Wills, Deeds, and Beneficiary Designations

Even sophisticated strategies can fail if basic documents are inconsistent. Nebraska farmers should ensure that:

• Wills and trusts clearly state who receives which assets, how taxes are to be allocated, and who will serve as personal representative or trustee.
• Deeds reflect the intended ownership (individual, joint tenancy, tenants in common, or in the name of a trust or entity) and are consistent with your plan for succession and tax mitigation.
• Beneficiary designations on life insurance, retirement accounts, and payable-on-death/transfer-on-death accounts match your overall strategy. If beneficiary forms conflict with your will or trust, the beneficiary designation usually controls.
• Operating agreements, partnership agreements, and bylaws are updated to reflect current ownership, buy-sell terms, and decision-making procedures.

A coordinated review helps reduce disputes among heirs and avoids surprises in how Nebraska inheritance tax and federal estate tax are calculated and paid.

Regular Reviews: Tax Laws and Farm Operations Change

Federal estate and gift tax rules, Nebraska inheritance tax laws, and agricultural economics all evolve. Estate planning is not a one-time project.

Farm families should revisit their plans when any of the following occur:

• Major changes in federal or state tax law
• Purchase or sale of significant land or equipment
• Changes in marital status for you or your heirs
• Next-generation children entering or exiting the farming operation
• Significant shifts in land values, commodity prices, or farm profitability

A periodic review with your attorney, tax advisor, and other professionals can confirm that your plan still meets your goals, uses available tax benefits effectively, and maintains flexibility for future generations.

How a Nebraska Farm-Focused Estate Planning Attorney Can Help

Because farm estates blend family, business, and land in unique ways, Nebraska farmers benefit from working with advisors who understand both agriculture and the tax system.

An attorney experienced with Nebraska farm and ranch estates can:

• Identify whether your current estate is likely to face federal estate tax exposure under the law applicable at death
• Evaluate how Nebraska inheritance tax may affect different heirs
• Recommend entity structures, trust arrangements, and gifting strategies suited to your operation
• Coordinate with your CPA, financial advisor, and farm management team
• Draft and update wills, trusts, deeds, and operating agreements that implement your goals

If your family farm represents a substantial portion of your wealth, consider scheduling a planning consultation to review your current structure, discuss your goals for the next generation, and outline steps to protect both your land and your legacy within the evolving legal and tax landscape.

Next step: To talk with a Nebraska farm-focused estate planning attorney about your situation, contact our office.

Frequently Asked Questions

Does Nebraska have an estate tax on farms?

Nebraska does not currently impose a state-level estate tax. However, Nebraska counties administer an inheritance tax that may apply to property passing to certain heirs, depending on their relationship to the decedent and the value received.

Can my heirs qualify for special valuation on Nebraska farmland?

In some cases, federal law allows special use valuation or other valuation adjustments for farmland used in an active family farming business. Whether your estate qualifies depends on how the land is used, who is involved in the operation, and how the ownership and succession are structured.

How often should I update my Nebraska farm estate plan?

Most Nebraska farm families should at least review their plan every few years, and sooner if there is a major change in tax law, land ownership, family circumstances, or the farm’s financial condition.

Is a revocable living trust enough for Nebraska farm estate tax planning?

A revocable living trust can streamline administration and avoid probate but does not automatically solve federal estate tax or Nebraska inheritance tax issues. Additional tools, such as marital and family trusts, entities, and gifting strategies, may be needed for larger or more complex operations.

Do I need a Nebraska-specific attorney for my farm plan?

Because Nebraska inheritance tax rules, probate procedures, and agricultural issues are state-specific, it is generally best to work with an attorney licensed in Nebraska who has experience with farm and ranch estates.

Important Nebraska-Specific Disclaimer

Disclaimer: This blog post is for informational purposes only and does not constitute legal, tax, or financial advice. Reading this material does not create an attorney–client relationship with any law firm or attorney. Estate and tax outcomes depend on your specific facts and on laws that change over time. You should consult a qualified attorney and tax professional licensed in Nebraska before making decisions based on this information.

References

• Nebraska Revised Statutes, Chapter 77 (Revenue and Taxation), including inheritance tax provisions (accessed 2024-10-01).
• Internal Revenue Service, Estate Tax overview (accessed 2024-10-01).