Don't Follow Hollywood Storylines About Taxes

I finally watched the final half season of Yellowstone and was underwhelmed. 

In addition, the tax plot line was horribly written and irritated me as a tax professional.

Inheritance taxes are not paid by the estate and are paid by those who inherit property. Only five states have inheritance taxes and Montana doesn’t even have an inheritance tax or estate tax. FYI: California does not have an tax inheritance tax or estate tax.

Federal Estate taxes would be due in Montana for the Dutton Ranch. I would be happy for my estate to pay estate tax as right now the exemption is almost $14 million (which I don’t have) and may drop to about $7 million if Trump’s tax cuts are not extended to next year. The estate tax rate is 40 percent on taxable assets over $1 million. 

Large illiquid estates generally have whole life insurance that is used to pay estate taxes at death. If John Dutton’s net worth was a billion dollars he definitely would have life insurance for estate tax purposes.

It’s likely the land was already subject to a conservation easement that restricts building on it since it’s used for farming. A conservation easement can exclude up to 40 percent of land from estate taxes but that exclusion is capped at $500,000.

Special valuation rules for farm property can reduce the value by almost $1.4 million (as normally land is valued at its “best use” rather than its current farming use so sometimes it’s valued more if developers think they can build something more valuable than using it for farming)

Normally, estate taxes are due 9 months after the date of death. However, the John Dutton Estate would have used an election to defer the tax. Estates with a large closely held business (which include active farms) that exceed 35 percent of the value of their estate can reply on Internal Revenue Code Section 6166 which allows installment payments,  The first 4 years only requires interest. Starting at the 5th year, there are 10 years of required principal payments so you can rely on a 14 year payment plan. This election does require that the business (Dutton Ranch) continue operating for the next 10 years.  So in Yellowstone’s tv show, a fire sale of the horses and land was unrealistic. Even if the Section 6166 installment rule did not apply, the worse that happens is that interest and late payment penalty starts to accrue after 9 months.

So bottom line: What you hear about taxes in movies and TV may be inaccurate. Similarly, what you see on TikTok, Reddit and Youtube and other social media platforms can be inaccurate and even worse fraudulent.