Keeping a Farm a Farm

1. Keeping a Farm a Farm SARE’s 20th Anniversary New American Farm Conference

2. 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”

3. 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

4. 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

5. 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

6. 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

7. 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

8. 2-Year NC-SARE Project • “Bringing Conservation-Based Estate Planning to Agricultural Professionals” • PDP project from 2002 – 2004 • Covering 3 states: • Illinois • Iowa • Minnesota

9. Training for Key Professionals • Agricultural – e.g., Extension • Conservation – e.g., Land Trusts • Legal/Financial – e.g., Farm advisors

10. 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

11. 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

12. 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

13. 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

14. 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)

15. 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

16. 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

17. 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

18. IRC Requirements • Perpetual Duration • Held by a “Qualified Organization” • “Exclusively” for Conservation Purposes

19. 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

20. 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

21. 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

22. 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

23. 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

24. 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

25. FARMLAND INFORMATION CENTER For Technical Assistance www.farmlandinfo.org (800) 370 - 4879

26. For information on American Farmland Trust visit us at: www.farmland.org