Gifting to Manage Estate Taxes

By: Robert Moore, OSU Extension

The federal estate tax exemption is set to drop dramatically in 2026—from $13.99 million in 2025 to an estimated $7–$7.5 million per person. For some farm families, this shift could result in significant estate tax exposure. While most estates won’t exceed the new limit, some farmers, especially those with high-value farmland or appreciating assets, will find themselves suddenly at risk of federal estate taxes.

Gifting is one strategy to reduce the size of your taxable estate, but it’s not always simple or risk-free. Let’s explore when gifting can help, when it might not, and what to watch out for.

Two Types of Gifts

There are two main gifting categories under federal law:

  • Annual Exclusion Gifts – In 2025, you can gift up to $19,000 per recipient ($38,000 for couples) annually without using any of your lifetime exemption.
  • Lifetime Credit Gifts – Larger gifts are allowed, but they reduce your lifetime estate tax exemption.  The lifetime estate tax exemption is the amount of wealth that the IRS exempts from estate taxes.  The exemption can be used at death, gifted away during life, or a combination of the two.

Example: If a parent gifts a $1,019,000 farm to a child, the first $19,000 is exempt from taxes and does not reduce the parent’s estate tax exemption.  The remaining $1,000,000 reduces the parent’s lifetime estate tax exemption from $13.99 million to $12.99 million.

Gifting Strategies That Work

1. Annual Exclusion Gifts

If you’re just slightly over the expected 2026 exemption, annual gifts can move you back under the limit.

Example: A grandparent with 10 grandchildren can gift $190,000 per year. Over 2 years, that’s $380,000—enough to reduce a modest estate and eliminate taxes.

But for high-net-worth individuals, $19,000 per person may be too little to make a significant impact.

2. Lifetime Gifts of Appreciating Assets

Large gifts don’t directly reduce estate tax liability (since they reduce your exemption), but they remove future appreciation from your estate.

Example: If you gift farmland worth $1M that later appreciates to $3M, only $1M is deducted from your estate tax exemption — the $2M in appreciation escapes estate taxation entirely.

Potential Downsides of Gifting

  • No Stepped-Up Basis.  Gifting assets during life means recipients take your original tax basis, not the stepped-up value at death—potentially increasing future capital gains taxes.
  • Loss of Control & Income.  You must fully give up ownership and control. Gifting income-producing property could impact your financial security.
  • Risk of Financial Mismanagement.  If a gifted asset is lost to debt, lawsuits, or divorce, it’s gone. One solution? Use an irrevocable trust to hold the gift—this protects assets while still benefiting your heirs.

Another Strategy: Pay Directly for Education & Medical Expenses

The IRS allows unlimited direct payments of tuition or medical bills without using your exemption. But payments must go straight to the provider, not to the individual.

Example: Grandpa has a $9 million estate and wants to reduce its size before the federal estate tax exemption drops in 2026. He has four grandchildren in college and a daughter who recently underwent surgery.

Grandpa pays the following directly:

  • $20,000 in tuition for each grandchild (4 x $20,000 = $80,000) directly to their universities
  • $25,000 in hospital bills paid  directly to the hospital for his daughter

Total Reduction in Taxable Estate: $105,000

Impact on Exemption: None—these payments do not count against Joe’s $13.99 million estate tax exemption or annual gift limit, because they qualify under the IRS educational and medical exclusions.  Grandpa could still give each of those recipients an additional $19,000 under the annual gift exclusion without any tax consequences.

Conclusion: Gift With Caution and Professional Help

Gifting can be an effective estate tax strategy—but only when used thoughtfully and with professional guidance. Consider the loss of stepped-up basis, the asset’s appreciation potential, your own financial needs, and the stability of the recipient. For some, the risks of gifting may outweigh the benefits.

With estate tax rules changing in 2026, now is the time to review your estate plan. Consult your attorney and tax advisor to determine if gifting fits your strategy—and how to do it safely.

For more information on gifting and estate taxes, see the Gifting to Reduce Federal Estate Taxes bulletin available at farmoffice.osu.edu.

Introducing FARMS: A Comprehensive Tool for Farm Transition Planning

Farm transition planning is an essential process for agricultural operations. However, identifying and tracking assets and resources and preparing for transition planning can present significant challenges for farm families. To assist with these tasks, Ohio State University Extension has developed the Farm Asset and Resource Management Spreadsheet (FARMS), designed to provide a structured approach to organizing farm transition information.

What is FARMS?

FARMS is an Excel-based resource designed to support farm families and agricultural professionals in collecting and systematically organizing all necessary information related to farm transition planning. Whether at the preliminary stage or already engaged in detailed succession planning, FARMS enables users to input and manage varying levels of data effectively.  See example screenshots below for further explanation.

What Information Does FARMS Collect?

Farms collects all the following information:

  • Family and beneficiary names and contact information
  • Bank accounts
  • Financial Accounts
  • Life Insurance
  • Business Entities
  • Real Estate
  • Personal Property
  • Farm Property
  • Debt information
  • Designations for executor, trustee, power of attorney, guardian

What Does Farms Do with the Collected Information?

FARMS uses the information provided by the user to do the following:

  • Help ensure assets are titled to avoid probate
  • Determine net worth and value of estate
  • Calculate estate tax liability
  • Allocate assets and net worth between spouses
  • Allocate assets among beneficiaries to determine how much each beneficiary will receive from the transition plan
  • Provide information that will be needed to complete wills, trusts and power of attorney documents.

How to Use FARMS?

Given its foundation in Excel, users should possess at least a basic familiarity with spreadsheet navigation. Training videos are available on YouTube to assist new users with becoming familiar with FARMS, explaining how to enter data and use the summary and analysis functions.  A link to the training videos is provided below. Additionally, OSU Extension occasionally provides training sessions for potential users.  It is recommended to review the training videos or attend a training session before using FARMS.

Who Should Use FARMS?

FARMS is suited for anyone involved in the farm transition planning process, from family members beginning their farm transition plan to professional advisors engaged in developing detailed transition strategies for clients.

Accessing FARMS

To begin using FARMS, interested users can download the file at the link provided below.  We request users complete an initial, short survey prior to downloading FARMS, as user feedback is important to the ongoing improvement of the spreadsheet.  FARMS is available at no cost due to the financial support of key partners including North Central Extension Risk Management Education and the National Agricultural Law Center.

Conclusion

FARMS offers a structured, organized approach to farm transition planning, allowing farm families and professionals to collect comprehensive, accurate information.  For additional information and to begin utilizing FARMS, visit Ohiofarmoffice.osu.edu and discover how FARMS can positively impact your farm’s transition planning efforts.

Links for FARMS

Training Videos are available here: https://www.youtube.com/@osufarmoffice

FARMS can be downloaded here: https://farmoffice.osu.edu/farmsspreadsheet

Upcoming FARMS Online Training Courses

Click on registration link to register for the course.

April 7 @ 10:00 am:   https://osu.zoom.us/meeting/register/oJmnwm-VQx6XjqvBh7J0aA

April 16 @ 10:00 am:  https://osu.zoom.us/meeting/register/iY9cLoJeQwS0rUHkHr3DpA

April 23 @ 1:00 pm:  https://osu.zoom.us/meeting/register/vT_-X56FQQqBT63fKUQW4g

May 2 @ 3:00 pm:     https://osu.zoom.us/meeting/register/KmbdTjq2SryLkYNOaevp3Q

Ohio Farm Resolution Services

Ohio has over 76,000 farms and 13 million acres of farmland.  In such a large and diverse industry, conflicts commonly arise that can lead to disputes, litigation, and appeals.  Ultimately, these conflicts can cause harmful effects that threaten the viability of Ohio agriculture.

The goal of Ohio Farm Resolution Services at The Ohio State University (OFRS) is to cultivate solutions to the conflicts that impact Ohio’s farms and farm families.  Established in October of 2023 with funding from the USDA Farm Service Agency’s Certified Mediation Program, OFRS serves Ohio agriculture with a three-pronged approach to helping resolve farm conflicts that will provide:

  1. Educational resources on Ohio farm conflict issues.
  2. Conflict resolution and consultation services by OSU Extension legal and farm management specialists.
  3. Formal mediation services by trained mediators.

What issues will we cover? The types of issues OFRS will address include:

  • Family communication
  • Farm transition planning
  • Business entities/ practices
  • Energy leases
  • Farm leases
  • Zoning
  • Land Use
  • Labor
  • Neighbor issues
  • Lender/creditor
  • Property disputes
  • Farmland drainage
  • Crops/Agronomics
  • USDA/ODA appeals
  • Estate disputes
  • Other farm related issues

If you have a farm conflict issue we can help you with now, please e-mail program director Robert Moore at moore.301@osu.edu.

How Inadequate Estate Planning Led to the Likely Sale of a Family Farm

By: Robert Moore, OSU Extension

As we all know, family farms often hold deep sentimental value. They are passed from generation to generation, with the hope that they will stay in the family. But without careful estate planning, these properties can become the subject of costly legal disputes—and even forced sales. A recent case from the Ohio Court of Appeals, Stephan v. Wacaster, is a textbook example of how inadequate planning can lead to the partition and sale of family land.

 

Don’t let this happen to the farm your family has worked for generations to build.  You can still register for our Planning for the Future of Your Farm Workshop. 

Click here for more details.

 

The Case: A Family Farm Divided

In Stephan v. Wacaster, the appeals court affirmed a decision forcing the partition[1] of a 95-acre farm in Miami County, Ohio. Here’s what happened:

Margaret Stephan, the original owner of the farm, left a will giving life estates to her two children, Connie Wacaster and DeWayne Stephan. Upon each of their deaths, the will directed that their respective shares would pass to their children. For DeWayne’s half, that meant his sons, Rick and Chris Stephan. For Connie’s half, her children, Tami Bodie and Todd Wacaster, would inherit.

Both Margaret and DeWayne passed away. Rick and Chris, now owning DeWayne’s one-half of the farm, filed a lawsuit seeking to partition the farm and divide the proceeds. Connie, still living and holding her life estate in half the property, objected. She argued that because she was still alive and held a life estate over the whole farm, the property couldn’t be partitioned until her death.

However, the court reached a different conclusion. It determined that Margaret’s will created a tenancy in common between Connie and DeWayne, rather than a joint survivorship. As a result, when DeWayne passed away, his sons, Rick and Chris, immediately inherited his half of the farm. This ownership gave them the legal right to seek partition of the entire property—even though Connie was still living there and held a life estate in her half.

If Rick and Chris move forward with partition, Connie will face a difficult choice: either purchase their half of the farm or allow the entire property to be sold—likely at public auction. If the property is sold, Connie may ultimately be forced to leave the farm altogether, losing not only her home but also the family legacy tied to the land.

Why This Happened: Poor Estate Planning

At the heart of this family dispute is a will that lacked clarity and failed to anticipate future complications. Margaret’s will did not create a survivorship interest for Connie and DeWayne, nor did it include restrictions to prevent partition actions. As a result, once DeWayne passed away, his children held a vested, possessory interest in half of the farm, and Ohio law granted them the right to partition the property.  It is probably safe to assume that Margaret would not have wanted the farm sold while Connie was still alive and lived on the property.

How Better Estate Planning Could Have Helped

This case is a cautionary tale for anyone who wants to keep property—especially family farmland—within the family. Here are a few ways Margaret’s estate plan could have avoided this outcome:

  • Survivorship Provisions: Margaret’s will could have created a joint survivorship life estate so that Connie would receive full ownership upon DeWayne’s death. This would have delayed the transfer of DeWayne’s share to his children until after Connie’s passing.
  • Use of a Trust: Rather than distributing life estates and remainders through a will, Margaret could have placed the farm into a trust, which would allow for more control over how the property was managed, used, and distributed over multiple generations.
  • LLC:  Margaret could have placed the farm into an LLC and her heirs could have inherited the LLC.  Provisions in the LLC agreement could prevent partition and only allow the farm to be sold if at least a majority of family members consented.

The Takeaway

Estate planning for real estate—especially family farms—requires careful thought and precise legal drafting. Without it, disputes like the one in Stephan v. Wacaster become commonplace.  Keeping land in the family for future generations can be accomplished by precise drafting in a will, the use of a trust, or setting up a land LLC.

This case is a reminder that even with the best intentions, a poorly drafted estate plan can drive wedges between family members and lead to the loss of important property. Anyone who wants to preserve their family land should work with an experienced estate planning attorney to create a plan that protects the property.

Education and medical expenses are exempt from gifting rules

By: Robert Moore, OSU Extension

Gifting can be an important part of a farm transition plan but it is important to understand the tax implications of gifting.  Taxable gifts refer to the total value of gifts given to others during a calendar year, which may be subject to gift tax under the U.S. tax code.  These gifts can include various types of property, money, or assets.  The determination of taxable gifts considers the fair market value of the transferred assets and any applicable exclusions or deductions provided by the tax code.  Currently, an individual may gift up to $17,000 each year to an unlimited number of people.  These annual exclusion gifts are not subject to gift tax.  Gifts made in excess of $17,000 are either subject to gift tax or reduce the lifetime gift exclusion by the amount of the excess gift.  For a detailed discussion of gifting, see the Gifting Assets Prior to Death bulletin at farmoffice.osu.edu. 

In addition to direct gifts, the payment of a bill or expense on behalf of someone else is usually considered a gift.  However, there are two specific exceptions.  The IRS allows education expenses and medical expenses to be paid for someone without being considered a gift.  These exemptions may present opportunities for those who are limited by the $17,000 annual gift limit.

Education Expenses

Paying tuition directly to a school is not considered a taxable gift.  There are two important points to remember regarding tuition payment.  The tuition must be paid directly to the institution, the payment cannot go directly to the student.  Second, the exclusion applies only to tuition payments.  Other school-related expenses like books, supplies, and room and board costs are not eligible for this exclusion.

Consider the following example:  

Dale has a grandchild who attends Harvard.  The tuition at Harvard is very expensive and Dale would like to help his grandchild.  Dale sends a check to Harvard for $50,000 to be applied to tuition.  The $50,000 that Dale paid for his grandchild’s tuition is not considered a gift and therefore does not count toward the $17,000 annual exclusion gift.  Dale could still gift up to $17,000 directly to the grandchild and still not exceed the annual gift exclusion.   

Medical Care

Payments that qualify for the medical exclusion are those made directly to a healthcare provider, medical institution, or medical insurance company for someone’s benefit.  Transportation and lodging costs related to the person’s medical care can also be covered, but there are specific rules, so it is best to consult with a tax professional.  The payments must go directly to the care provider or insurance company, not to the individual receiving care, to avoid it being considered a taxable gift above the annual exclusion amount. 

Consider the following example:  

Waylon and his neighbor Tom are lifelong friends.  Tom is at Waylon’s house for dinner when he begins to have extreme stomach pain and nausea.  Waylon calls 911 and an ambulance takes Tom to the hospital.  Once at the hospital, Tom is rushed into surgery to have his appendix removed.  A few weeks later, Tom receives a bill from the hospital for $25,000.  Waylon knows Tom has been down on his luck financially and he does not want Tom stressed about the cost of the life-saving surgery.  Waylon pays the full $25,000 directly to the hospital for Tom’s surgery.  Additionally, Waylon gifted Tom $10,000 to help cover his lost wages while he recovered.  By using a combination of the medical expense exemption and the annual gift exclusion, Waylon was able to help out Tom with $35,000 without having to pay gift taxes or adversely affecting the lifetime gift exemption.

Estate Planning Implications

Farmers who may wish to transfer wealth to others during their life should keep in mind the annual gift exclusion and the education and medical payment exclusion.  These strategies allow money or other assets to be transferred without negative gift or estate tax implications.  Using these exclusions can help farmers plan their estates by passing on assets, supporting education, and managing healthcare expenses with fewer tax issues. 

Agricultural easements can address farmland preservation and farm transition goals

Questions from farmers and farmland owners about agricultural easements are on the rise at the Farm Office.  Why is that?  From what we’re hearing, the questions are driven by concerns about the loss of farmland to development as well as desires to keep farmland in the family for future generations.  An agricultural easement is a unique tool that can help a farmland owner and farming operation meet goals to protect farmland from development or transition that land to the next generation.  Here are answers to some of the questions we’ve been hearing.

What is an agricultural easement? 

Continue reading Agricultural easements can address farmland preservation and farm transition goals

A Comparison of Business Entities Available to Ohio Farmers

By: Robert Moore, Barry Ward, OSU Extension

Ohio farmers have many choices when selecting a business entity for their farming operations. Choosing the right entity is important, as it can impact issues such as how the business functions, ownership rights, personal liability, and taxation. What should a farmer consider when deciding which type of entity to use for a business? We provide an overview of business entities used for farm operations in this bulletin, compare ten important factors to consider when making the entity selection decision, and highlight the advantages of using a formal business entity. A Business Entity Comparison Chart at the end of the publication summarizes entity characteristics. As with all legal issues, consultation with an attorney is critical to making a successful decision.

Types of business entities

Sole Proprietorship. A Sole Proprietorship is a business owned by a single person who is referred to as the “sole proprietor.” The sole proprietor and the business are one and the same—there is no separate legal business entity. The sole proprietor owns all business assets, is responsible for all liabilities, and reports income as individual income.

Partnership. A partnership exists when two or more individuals or “partners” jointly own and conduct a business for profit. A “General Partnership” consists of partners who each have management authority and personal liability for the partnership and who report income from the partnership as individual income. A different type of partnership, the “Limited Partnership,” allows investors to enter a partnership as “limited partners” without involving them in management and exposing them to personal liability for the partnership.

Click here to read more.