Short term evaluations of alternative investment and estate planning strategies on private nonindustrial forests

Abstract

The purpose of this study is to analyze the effects of selected tax provisions and management strategies on the profitability of the forest assets over a short time horizon. The subject matter is organized into three separate and independent analyses.

First, two major federal estate tax provisions, special use valuation and deferral and extension of estate tax payments are reviewed. Requirements are discussed and the economic implications of electing these options are modeled for a simulated forest estate over a 15 year period. The preferred choice when the estate is retained or sold by the heirs is with the election of a combination of special use valuation and deferral and extension.

In the second analysis, timber growth is simulated for loblolly management regimes to determine whether thinning is financially the preferred choice. Selected alternatives for stand thinning age and rotation age with two planting densities and site indices 60 and 70 are evaluated for row and low thinning and for several assumptions on stumpage price responsiveness.

The final study again looks at estate tax implications for hypothetical forest estates and includes loblolly pine growth in the model. The objective is to evaluate the estate tax impacts at different stages of timber growth and to determine how to best incorporate estate planning. The amount of tax depends on the valuation method and stage in growth. The greatest estate taxes are generally incurred when timber value is based on the capitalization of future income from the woodlands and with older stands. Marital deduction planning is dependent on appreciation.