The family breeding heritage at stake in the battle for inheritance rights
By Jennifer Whitlock
At 84, Melville Steubing has been breeding ever since he learned to walk. And his family’s breeding heritage goes even deeper.
From the first year that his German immigrant ancestors set foot on Texas soil in the 1840s until today, there has never been a time when the Steubing were not involved in the Agriculture.
But everything he and his ancestors worked to pass on to future generations may be lost forever, thanks to the devastating estate tax proposals being considered in Congress.
Having spent 25 years as an agent of the Internal Revenue Service (IRS), Steubing is no stranger to the US tax code. The current proposals included in President Joe Biden’s proposed budget for fiscal year 2022 are some of the worst ideas he’s ever seen.
âI’m scared and I’m really scared that if they pass these tax laws, the unintended consequences will force many ranch families to sell,â he said. âIf they do that, my daughters won’t be able to keep our property. “
As part of his U.S. Plan for Families, Biden has proposed ending the increase in the base of earnings on death, increasing taxes on capital gains, and treating death and gifts as transactions. , among other changes.
The legacy of a ranch family
As the youngest son of a large family, Steubing grew up hunting and herding a large expanse in Converse, northeast of San Antonio. Despite the large plots of land associated with the surname, times were tough.
Steubing said he took an accounting course and got his teaching certificate, so he would still have three different ways of earning an income: farming, accounting, and teaching.
At school, he met Cinda Howard, who had a similar background growing up on a family ranch in Iola. They married after graduating from Sam Houston State University and began raising a family of their own while helping with their family’s ranches.
âAt first I had to have another job just to run a ranch, before inheriting or buying land on my own. I worked the day for the IRS in a suit. I would come home, jump into my blue jeans and we would go to the ranch and feed the cattle at night, âhe said. âWe worked as hard as we could, and got to where we are now with legacy and investment property and reinvesting in land whenever we can.â
Melville and Cinda’s love for herding runs through their children’s veins. Their daughter and son-in-law, Beverly and Gary Box, have run the Steubings’ Carrizo Springs operation since 1983. They have also purchased their own property where they have a cattle and deer farm and grow hay. Three years ago, they started renting the property from Beverly’s parents and now make all of the management decisions and oversee day-to-day operations.
The future of a family in danger
The Steubing plan to leave their properties to their daughters when they die so they can continue the family’s herding legacy. But Biden’s tax proposals have them extremely concerned that the inheritances of future generations could be swallowed up by tax.
Currently, Steubing explained, when a person dies, the property or estate of the deceased person is valued on the date of death.
The heirs, who are subject to inheritance tax up to a maximum tax rate of 40%, receive an increase in the base on the value of the heritage. If the assets have appreciated between the time they were originally purchased and the time the heir inherits, the base is increased to fair market value without incurring capital gains tax.
If an heir inherited property that received a fair market value of $ 2.2 million and sold that property for $ 2.2 million, under current law, he will not pay any income tax. capital gains.
But Biden’s proposal would eliminate the base increase and instead move the inherited property to a “transfer” base. Instead of allowing an heir to increase the current value base, they would take the property base when it is acquired by the deceased.
In the same scenario, an heir with an inherited property purchased at $ 200,000 that is now worth $ 2.2 million who sold the property would have to pay capital gains taxes on $ 2 million.
This is a common situation when the land has been passed down from generation to generation, Steubing noted. Land was often bought for a price much lower than its current value, even allowing for inflation. In Texas, data from the United States Department of Agriculture’s Summary of Land Values ââindicates that cropland values ââchanged 201% between 1997 and 2020.
âThe reinforced base doesn’t make much of a difference if you keep the land or the house or whatever you’ve inherited forever. If it’s worth $ 1,000 or $ 1 million, it doesn’t matter. You are not selling anything, so there is no capital gain, âhe said. âBut if you ever had to sell part of the land to finance new equipment or to buy additional livestock, losing that base increase would really make a big difference. This would likely coincide with a much higher capital gains tax.
So, it multiplies the taxes enormously on a single transaction.
That’s because the Biden administration has indicated that it will tax capital gains for âhigh income earnersâ at regular rates. In the heir’s situation with the deferral base of $ 2 million, this gain would be factored into his Adjusted Gross Income (AGI), possibly pushing him above an AGI cap of $ 1 million. dollars. The heir would then have to pay ordinary tax rates of up to 37% on the capital gain. The currently highest capital gains tax is 20%.
Despite Biden’s explanation that raising capital gains taxes would only impact the rich, it would affect family farms and ranches more. In 2018, according to IRS data, nearly 40% of family farms and ranches reported capital gains or losses, compared with about 14% of the average individual taxpayer.
Another issue is to consider death as a “transaction”.
In addition to the example provided, the heir whose property was purchased for $ 200,000 and worth $ 2.2 million would now have to pay capital gains taxes on the $ 2 million gain, even s ‘there was no actual sale.
The situation seems unconstitutional in Steubing.
âTo think of death as a sale or a transaction would be awful. It would force people to sell. This is one of the worst things that can happen, âhe said. “How is it fair when you’ve had a property for 64 years, like this land here in Carrizo Springs that my dad bought, and you have to pay the difference between the $ 100 an acre it was bought for and the $ 2,000 or $ 3,000 an acre that it’s valued at now and not even sold? Where do you get the money to pay for this?
The value of many farms and ranches is linked to land, equipment and livestock, he noted. Most families do not have the money to pay these capital gains taxes and would be forced to liquidate.
âThe worst part is what this will do to the agriculture industry. If you own shares in a company, you can sell all the shares you need to pay taxes, âSteubing said. âBut here you are disrupting the whole industry. Many family businesses have higher margins or may adjust their sales. Farmers and ranchers are price takers. We are at the end where we cannot control anything.
He is worried about who will be there to buy the struggling family farms and ranches if the tax changes go through. Executives of large technology companies? Investment firms? Foreign sources? Developers? He wonders who will be left to grow and raise food.
âThe family farm and the ranch would no longer exist,â he said.
An uncertain way forward
If the tax proposals were passed, it would “destroy” the Steubing ranches.
“And now if after all of this effort – me, all of my grandparents and parents, my wife and her father and all of her ancestors – we worked really hard to get to that point where we can actually have an income without need to have another job. But if they enact these taxes, my daughters won’t be able to keep the property, âSteubing said. âMy daughters and their children would have to work from scratch with what little we had left and have extra jobs to try and rebuild it to where it was, and they could probably never get this far with the land prices and inputs being what they are these days.
While there are many challenges ahead, Steubing is adamant he has no intention of stopping herding or selling land until his daughters inherit.
He urged anyone with a farm, ranch or small business to contact their lawmakers and let them know how damaging this legislation would be to their operations.
While the impact may vary, farms and ranches of all sizes will be affected.
âAll I want to say to everyone is fight this. It’s a matter of life and death for farmers and ranchers,â he said. âI have seen how bad tax laws can affect people.
Advocacy of the Agricultural Office
Texas Farm Bureau (TFB) and the American Federation of Agricultural Offices continue to discuss the negative impacts of tax proposals with lawmakers.
In June, Republican leaders from the Select Revenue Measures Subcommittee of the US House Committee on Ways and Means held a meeting to discuss the ramifications of changes to inheritance tax codes on family farms, ranches and small businesses.
TFB District 1 State Manager Pat McDowell testified before the committee, explaining how the tax proposals would personally affect his family’s farm and ranch.
TFB encourages its members to contact congressional leaders to demand that the base be maintained and not to impose capital gains tax on death.
More information is available at texasfarmbureau.org/advocacy/voter-voice.