Ohio Strategies for Applying CAUV Benefits to Estate Planning and Estate Taxation

Many owners of farmland throughout Ohio pay real estate taxes on their land with the taxes being assessed on the agricultural value of the land instead of the fair market value. However, many of these owners do not realize that this same Current Agricultural Use Valuation (CAUV) is also beneficial for estate taxes.

When a person passes away and the estate is required to file an Ohio estate tax return, Ohio allows the representative of the estate to take a CAUV election to reduce estate taxes on the real property. To qualify for this election, the estate must show:

• The farm is located in Ohio;
• The deceased person owned the property at the time of death (includes ownership in a revocable trust created by the deceased person);
• The property is devoted exclusively to agricultural use; and
• The agricultural assets (including buildings, farm stock, crops, etc.) represent 50% of all assets listed on the estate tax return.

If the above requirements are met, then the estate has the further requirement of making a CAUV election on at least 25% of the agricultural land. An election can be made on anywhere from 25% to 100% of the agricultural land, with the percentage depending on the amount of tax savings needed. This causes the property subject to the election to be valued at the auditor CAUV number rather than the fair market value. If the election is made, the family must also meet further requirements.

First, the property that is elected on cannot be taken out of agricultural use for four years after the person passes away. This is not violated if the new owner lives outside of Ohio and cash rents the property to a stranger. Second, the property that is elected on cannot be sold outside the family for four years after the person passes away. The definition of "family" is quite broad. Finally, Ohio places a lien on the property elected on for that four-year period. If the new family owner of the property uses any of the property for other than an agricultural use or sells any of the property outside the family within the four-year period, Ohio could require back estate taxes to be paid.\

Normally, it is effortless for a farming family to meet the requirements and live with the consequences. If CAUV is elected, it has the potential for large estate tax savings. Ohio allows the CAUV election to reduce the gross amount of real property on the estate tax return by $500,000. If this full reduction is taken, the estate saves $35,000 in estate taxes. A single person's estate can enjoy the estate tax reduction, or, a husband's estate and a wife's estate can each enjoy the estate tax reduction. Estate planning during a person's lifetime can assist in ensuring that CAUV estate tax savings will be possible.