keeping a farm a farm sare’s 20 th anniversary new american farm conference
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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