Study of Nearly 1,000 Family Business Owners

• Study Contents

D. Are Family Agri-Businesses Different?

• Table 5 - Future Impact of Estate Taxes

The family agri-businesses we studied have less wealth independent of the business (cash, other stock, real estate, life insurance, etc.) than other family business owners. As shown in Table 1, family agri-businesses accounted for 39 of the 967 family businesses surveyed. Their assets were more heavily concentrated in the family business (45% of their total estate) than was the case in the general population of family firms (35% of their total estate). This combined with illiquid nature of land which makes up significant portion of family farm assets places family agri-businesses are more at risk with respect to estate taxes. This implies that given equal estates, family estate tax obligations are even more likely to affect the family agri-business than other types of family businesses.

The data also indicate that the impact of estate taxes on family farmers and ranchers is often more severe than on the general population of family businesses:

• Nearly half (46%) of the family agri-businesses surveyed adopted a shorter-term focus for business investments.
• More than two-thirds (68%) are more risk averse because of estate taxes.
• Family agri-businesses expect to be more likely to liquidate when estate taxes next come due (37%) than the other family businesses surveyed (33%).
• The 39 family agri-businesses included in this study lost a total of 76 jobs when estate taxes last came due.
• They claim to employ 225 fewer people than they would if estate taxes were eliminated.
• Given their current combined employment, this represents 7.3% job growth that has been prevented by estate taxes.
• These business owners also expect to lose nearly 300 additional jobs when estate taxes next come due.

Many family agri-businesses appear to have recognized their increased vulnerability to estate taxes compared to other family businesses:

• They spend nearly twice as much annually for estate tax planning as other family businesses relative to the size of their combined estate -- 0.16% of their estate compared to 0.08% spent by the general population of family firms.
• They have also been engaged in estate tax planning within the family for a longer period of time, a median of 10 years compared to a median of 5 years among the general population of family firms.

Even among those who spend significant time and money preparing estate plans, most family business owners do not appear to understand the degree of their pending estate tax liability. While most family business owners appear to be significantly underestimating their pending estate tax liability, family agri-business owners' expectations are likely closer to reality.