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Friday, June 11, 2021
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Carl Sampson
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Our View
Breaching headgates won’t solve Klamath issues
wo Klamath irrigators say
they will breach the Klam-
ath Project headgates in an
attempt to get water flowing to more
than 1,000 farmers who had the taps
turned off last month by the Bureau
of Reclamation.
It is a foolhardy and futile plan,
made only worse by the prospects
that activist Ammon Bundy and other
outside actors will join the effort
and force a standoff with the federal
government.
The bureau shut down the Proj-
ect’s A Canal for the entire irrigation
season May 12 in response to wors-
ening drought conditions — allot-
ting zero surface water from Upper
Klamath Lake for thirsty crops and
livestock.
It is the first time in more than a
century the A Canal will deliver no
water to irrigators, using that water
instead to serve protected species.
As a result, more than 150,000
acres of farmland will receive zero
irrigation water this season. The
T
Holly Dillemuth/For the Capital Press
The canal carrying irrigation water to
the Klamath Project is at a standstill af-
ter the U.S. Bureau of Reclamation cut
off water.
impact will be devastating, not only
to the farm community but to the
region’s economy at-large.
It may seem that desperate mea-
sures are more satisfying than
time-consuming political and legal
resolutions. But the interests of all
farmers in the basin could be under-
mined by the illegal actions of a
handful of irrigators, particularly if
they are aided by outside agitators.
Ammon Bundy is the son of
Nevada rancher Cliven Bundy. The
Bundy family’s dispute with the
Bureau of Land Management led to a
tense standoff at their ranch between
federal agents and armed militia
members in 2014.
In 2016, the group came to Ore-
gon’s Harney County to support
two local ranchers convicted of set-
ting fire to federal land. When they
failed to whip the ranchers and the
townspeople into a revolutionary
frenzy, a splinter group led by Bundy
took over facilities at the Malheur
National Wildlife Refuge as a larger
protest against federal control of
western lands.
Their stated goal of holding their
position until the federal government
returned the land to private owner-
ship was at best a delusional hope,
and did nothing to resolve the real
issues that still exist between the
government and Western agriculture
and timber interests.
While Bundy himself has escaped
conviction on a host of charges over
Our View
Creating a legacy
through lifetime gifting
T
Wikipedia
Public Enemy No. 1
When it comes to
pests, it’s us or them
armers and ranchers learn to keep a
sharp eye out for invasions. Not the
military kind, the pest kind.
Whether they are insects, amphibians,
mussels or rodents, they are up to no good.
Perhaps the most famous of the inva-
sive species are the Asian giant hornets,
which have shown up in British Columbia
and Washington state in the past couple of
years. These oversized insects are not only
ominous-looking, they can tear through
a honey bee hive in a matter of minutes,
beheading any bees in their path.
Then there is the tiny spotted wing dro-
sophila, which has made its way to the
Pacific Northwest. These pests are unique
because they destroy fresh fruit, not just
fruit that is already rotten.
The even tinier citrus psyllids have
brought another plague from Asia — Huan-
glongbing, which translated from Chinese
is yellow dragon disease. It causes citrus
greening, which makes citrus fruit unmar-
ketable and kills the trees.
The quagga mussel has Northwest agri-
culture and wildlife biologists on red alert.
These small fresh-water pests multiply rap-
idly once they take hold — so fast that they
can clog irrigation pipes, pumps and canals
and municipal water systems. Most recently,
they have been spotted in Oregon pet shops
in sponge balls for fish tanks, causing state
regulators to ban the products.
Cuban tree frogs from the Caribbean
also have shown up in Oregon. While
only two were found, regulators are
keeping an eye out to make sure no oth-
F
ers hitchhiked to the region.
But nothing — and we mean nothing —
is as daunting as the invasion parts of Aus-
tralia have been subjected to: mice.
In our experience, few pests are as
destructive as mice. They eat crops, which
is bad enough. They get into bins and eleva-
tors, destroying whatever they come across.
And they eat the wiring in cars, trucks, trac-
tors and any other vehicles they can get
into. They reproduce exponentially and live
in walls, crawl spaces, attics, brush — any-
where. They urinate on everything in sight,
rendering it unusable.
In Australia, the mice have overtaken
much of the countryside in New South
Wales. At night, farmers describe “carpets”
of mice as far as they can see. They have
taken over houses and other entire build-
ings. One farmer said a single water trap
killed 7,500 mice in one night.
The worst part: the millions of rotting
dead mice that have accumulated have
soured the countryside.
In a 2019 feature, we described mice as
“Public Enemy No. 1.” That is an under-
statement. They can do as much damage as
any pest around. We know of a mouse fam-
ily that destroyed a car’s wiring, causing
thousands of dollars in damage. We know
another case in which a couple of mice died
in the fan of a truck’s heater, causing a per-
manent stink.
Any invasive pest must be “terminated
with extreme prejudice.” You know what
we mean.
When it comes to farming and ranching,
the choice is simple: It’s us or them.
the years, those around him haven’t
been so lucky. One of his follow-
ers, LaVoy Finnicum, was shot and
killed as police tried to arrest him in
connection with the wildlife refuge
standoff.
These tactics have yet to lead to
their supporters’ stated goals, and
they won’t resolve the issues involv-
ing irrigators, the tribes, endan-
gered species and the Bureau of
Reclamation.
Any breach of the headgates
would be short lived and wouldn’t
bring relief to drought-stricken farm-
ers. And no matter how popular such
a thing would seem locally, it would
reflect dimly on the farmers’ case in
the places where the political and
legal decisions are made.
We cannot condone extralegal
efforts to return water to Klamath
irrigators.
Lawlessness is lawlessness,
no matter who perpetrates it or
how firmly they believe in their
justifications.
axes! This is usually the
first question that comes up
for families who are con-
sidering gifting their farm to the
next generation. A fact that some-
times surprises clients is that Ore-
gon and Washington have no gift
tax. Because of this, the taxes that
are a concern when gifting during
life are the federal gift tax and, in
the event the children ever sold the
farm, the capital gains tax.
Let’s look at each tax through
the lens of a family farm. Cur-
rently, most individuals can give
a large portion or all of their farm
assets to their children with no gift
tax. The federal gift tax exemp-
tion is currently set at $11.7 million
per person. Because of this, a mar-
ried couple can give a farm valued
at $23.4 million to a child and there
is no gift tax payable by either the
parents or the child. Many people
do not realize there is this lifetime
gifting exemption on top of the
$15,000 per year that is allowed as
an annual exclusion gift.
On the capital gains side, the
children who receive the farm
interests also receive the parents’
income tax basis in the farm. If the
children ever sold the farm, then
they would pay capital gains tax
on the difference between the sale
price and the income tax basis their
parents had. If the farm is inherited
at death, there may be estate taxes
paid, but the farm would receive a
new income tax basis to fair market
value as of the date of death.
Most parents who gift to chil-
dren do not care about this income
tax basis risk for a couple reasons.
First, they don’t want their chil-
dren to sell the farm. The goal is
to create a legacy by keeping the
farm in the family. If a child does
sell the farm against their parents’
wishes, then the child will deal
with the tax consequences at that
time.
A second reason involves the
recent proposals for estate tax and
capital gains tax. The maximum
allowed to pass tax free by gift-
ing and inheritance is scheduled to
decrease within the next few years.
The current rule allows a “step up”
in income tax basis to fair market
value for assets in a person’s estate
at death.
A few weeks ago, the Biden
administration proposed new rules
for capital gains taxes that would
trigger capital gains tax at death
on gain over $1 million. On top
of that, there is also a proposal to
raise the top tax rates for capital
gains.
There is not much known yet
about whether a change like this
will pass through the legislature
or if there would be an exception
for family farms. If not, then the
administration may go back to pro-
posing a reduction in the estate
and gift tax exemptions. What we
do know is that future tax law is
unknown. This requires people
to decide for themselves whether
GUEST
VIEW
Maria
Schmidlkofer
they think taxes will be going up or
down in the future.
We also know that the current
estate and gift tax exemption is one
of the most favorable exemptions
we have ever had, so many peo-
ple are timing their gifts while the
exemption is favorable.
Once you have decided to make
a gift, the next question is whom
you want to gift to. Frequently,
this involves a decision between
creating a trust to benefit your
spouse, or gifting in trust or out-
right to your children. A trust is an
agreement between the person cre-
ating it (the donor) and the person
in charge of it (the trustee) to hold
assets (like a farm) for the benefit
of someone (the beneficiary).
Some spouses decide to gift
to an irrevocable trust called a
Spousal Limited Access Trust
(“SLAT”). This trust has many
requirements, but essentially, a
spouse can gift an asset like a piece
of real estate or business interest
to an irrevocable trust for the ben-
efit of the other spouse for life. If
the trust is set up correctly, this will
keep the assets out of both spouses’
estates at death and allow the trust
to pass estate-tax free on to the
children after both spouses pass
away.
Many clients decide that they
are ready to pass the farm directly
to the next generation. If this is the
goal, then what is the best way to
do so? One option is an outright
gift. A gift can also be to a trust
that has some controls on the way
the property can be used.
Finally, how much to gift? Peo-
ple often decide on a partial inter-
est gift rather than giving a whole
piece of real estate or an entire
business. This could be a minority
interest in the real estate or busi-
ness so that the parent can continue
holding the majority interest. Prior
to giving, parents must ensure that
they are retaining sufficient funds
to continue their own lifestyles.
Gifts to children should only be
assets that a parent does not need.
Gifting the farm is not just about
the numbers but also about the peo-
ple involved. It requires evaluating
personal goals and values to decide
whether the time is now.
Maria C. Schmidlkofer is an
estate planning, tax, and farm suc-
cession attorney in Schwabe’s Nat-
ural Resources industry group.
She can be contacted at either
mschmid@schwabe.com or 503-
540-4265. This article is a brief
summary of the tax implications of
gifting a family farm and does not
constitute legal advice. For legal
advice specific to your situation,
you should contact an attorney.