Keeping a Farm a Farm SARE’s 20 th 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 before real 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)

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