Keeping a Farm

a Farm SARE’s 20th Anniversary New American Farm Conference

American Farmland Trust

National nonprofit organization Founded in 1980 by farmers and

conservationists Mission is “To stop the loss of

productive farmland and to promote farming practices that lead to a healthy environment”

AFT’s Work

To protect farmland, keep it healthy and plan for its future through:

Education, outreach and technical assistance

Planning and policy development Research, both academic and applied

We Keep Losing Farmland

Farms are vulnerable when they pass from one generation to another

2.3 million acres of rural land are developed every year

1.2 million acres of agricultural land are developed every year

More Old, Fewer Young Farmers

Average age of principal operators up from 50 in 1982 to 55 in 2002

> 65 up from ~18% in 1982 to 26% in 2002

> age 35 declined from 16% in 1982 to 6% in 2002

Some Causes of Farmland Conversion

Aging farmers without heirs to take over their operations

Young farmers who can’t afford to buy land

Farmers lack information about how to protect their land

Estate Planning Can Help

Transfer the farm business to keep the farm a farm

Treat family members fairly

Pass the land on to future farmers

Link young farmers who need land with retiring farmers who have land

2-Year NC-SARE Project

“Bringing Conservation-Based Estate Planning to Agricultural Professionals”

PDP project from 2002 – 2004

Covering 3 states:

Illinois

Iowa

Minnesota

Training for Key Professionals

Agricultural – e.g., Extension

Conservation – e.g., Land Trusts

Legal/Financial – e.g., Farm advisors

Training Assumptions

Farming & ranching are businesses

Economics & family concerns shape landowners’ priorities

Land is an important part of the planning equation

Balancing conservation & commercial goals is challenging

Goals of Estate Planning

Transfer ownership & management of land, business & other assets

Develop the next generation’s management capacity

Avoid unnecessary income, gift & estate taxes

Increase financial security & peace of mind for all generations

First Steps

Set personal goals for the estate plan Inventory assets Assemble a trustworthy team

Work with them on strategy

Choose a business organization that fits Complete a will, living will, health care

proxy & power of attorney Deal w/ management & transfer issues

Many Tools and Strategies

Insurance & trusts

Gradual transfer, split estates & buy/sell agreements

Transfer operating assets beforereal estate

Special Use Valuation: Section 2032A

Conservation Options, especially Agricultural Conservation Easements

Conservation Options

Donate/sell conservation easement

Donate/sell farm or ranch to a nonprofit organization and/or retain a life estate

Create a charitable remainder trust (CRT)

Create a charitable gift annuity (CGA)

Conservation Options Can Help

Save land for future generations Generate income for retirement Avoid capital gains taxes Reduce income, gift & estate taxes Keep the farm in the family while

providing income for members who choose to leave the farm

Agricultural Conservation Options

Conservation easements are main tool Agricultural Conservation Easements

can be: Donated Sold Incorporated into your will

Most are permanent & pass to future owners through the deed to the property

Ag Conservation Easements

Voluntary deed restrictions that limit non-farm use but support agriculture

Preserve property rights, e.g., to deny public access, sell, lease, transfer, etc.

May apply to entire property or to part

Qualified easement “holder” obligated to enforce easement terms

IRC Requirements

Perpetual Duration

Held by a “Qualified Organization”

“Exclusively” for Conservation Purposes

IRS “Two Prong” Test

Must clearly delineate government conservation policy and yield a significant public benefit

OR Provide scenic enjoyment for the

general public and yield a significant public benefit

Tax Benefits to Donating Easements

Income Tax Deductions (Section 170(h))

Estate and Gift Tax Benefits (Sections 2055(f) and 2522(d))

Limited Exclusion (Section 2031(c))

Pension Protection Act of 2006

Selling Ag Easements

Benefits

Convert non liquid asset to liquid asset

Provide income for retirement

Strengthen farm business

Make it easier to transfer farm operation

Selling Ag Easements

Drawbacks Not available everywhere:

Only 27 states have authorized programs 56 independent local programs operate in 18

states Combined, 32 states have state and/or local

programs Not enough funding Backlog of applications Can be long & complex transaction

process

Funding Sources for PACE

Appropriations, bonds, special taxes for state & local PACE programs

Federal Farm & Ranch Lands Protection Program (FRPP)

Private matching funds, including nonprofits, neighboring landowners & bargain sale by applicants

Training Outcomes

Outcomes differed more widely than expected

Had to modify training to support very different knowledge base

More successful training trainers in Illinois & Minnesota than in Iowa

Participants frustrated by dearth of PACE programs in North Central region

FARMLAND INFORMATION CENTER

For Technical Assistance

(800) 370 - 4879

www.farmlandinfo.orgwww.farmlandinfo.org

For information on American Farmland Trust

visit us at:

www.farmland.org