I’ve always wondered about this. Can’t the farm owner put it into a son or daughter’s name to protect them from the IRS?
It would be subject to gift tax. With proper planning you could, over a period of years, transfer small portions of ownership without paying tax, but if the property is substantial you might need to start when the children are born.
My dad died in 1997. At that time anything over $600K was taxed at 55%. His will was set up exactly as Submareener described in post 11 above. $600K in assets went into a trust and the rest went to my mother. No tax was due until my mother passed.
My mother passed this year, so we got (tax wise) lucky. Since her estate was valued less than $5 million there will be no estate tax.
My wife's dad is still living, but probably doesn't have much time left. He owns a tree farm of about 1000 acres that will definitely be valued in excess of $1 million (the expected limit as of 1/1/13). His will leaves the farm to my wife and her sister, but leaves all other assets to his wife. If he dies and the farm is valued at $1300/acre then my wife and her sister will have to come up with $165K to pay the IRS.
Since her dad isn't leaving any cash the only option is probably to sell part of the land. My wife and her sister could buy part of the land from the estate to raise the cash, and that's probably what will happen, but there is no way to escape the tax monster.