Gifting Land to the Next Generation
One of the more difficult aspects of owning farm or ranchland deals with how that land will be transferred to the next generation. In particular, identifying the correct process by which to pass on that land to children is one of the most important parts of estate planning. The good news is that successfully gifting land to the next generation needn’t be as difficult as it might initially seem.
For many people, estate planning gets pushed to the back burner for years. Some people feel they’re too young to worry about such things yet; others are reluctant to discuss estate planning for fear of bringing about family quarrels. Often times, the younger generation doesn’t bring up the need for a plan because they don’t want to be considered greedy about their inheritance, or they don’t want to think about their parents growing old. Undoubtedly, these are all valid concerns. However, should necessity arise, and an estate plan is not in place, the problems that result can be significantly more troublesome.
A great place to start is to identify—first as an individual, then a couple (if married), and finally, as a group/family unit—the goals that are important in the planning and transfer process. Think these through thoroughly, and jot them down. Having a clear purpose in mind, and reconciling the different goals at each level, is often the greatest hurdle in the planning process. Knowing and then discussing these goals—which are usually based on the values held important to each party—allows both generations to feel that their needs are being considered in the process.
The next step is to consider ownership options. Should titles and business structures be changed? Enlisting the help of an attorney, an accountant, a financial planner, and a professional farm and ranch manager, is the best way to make sure that the needs of both parties are met in an effective way.
Finally, one must choose the method by which they will pass on taxable wealth. This could be a direct cash transfer, a direct land transfer, or a FLP, LLC or LLP Unit Transfers. An FLP (family limited partnership), LLC (limited liability company) or LLP (limited liability partnership) is commonly used to transfer farmland value to children. According to farm CPA Paul Neiffer, “Each [FLP, LLC, or LLP] allows the land to transfer in and out of an entity with little or no tax liability and provides a shield against personal liability for any debts of the entity.” Another option is to form a trust. There are many types of trusts. The benefits of the latter two methods include the ability of the older generation to meet his or her retirement needs while simultaneously allocating income and passing on wealth to the next generation.
Estate planning is a vitally important part of ensuring that the work you’ve put into your farm and land is kept intact as you head into retirement. It is important to pass along your assets to your children and grandchildren, without leaving them a heavy tax burden in the process, while also ensuring a financially secure retirement for yourself. If you have questions about estate planning, contact a UFARM land manager; they are able to help you sort through your options and point you in the right direction.
United Farm and Ranch Management (UFARM) is a Nebraska-based company devoted to meeting landowners’ needs. UFARM offers a full range of Nebraska land management services, including real estate sales, rural property appraisals, consultations and crop insurance. UFARM has operated in Nebraska since the early 1930’s. Contact Us.
Sources consulted: Danes, Sharon, Goetting, Marsha, et al. “Transferring Your Farm or Ranch to the Next Generation.” Montana State University Extension. Feb. 2014. Web. 08 Sep. 2014.
Neiffer, Paul. “The Farm CPA: The Gift Land Rush.” Agweb. Farm Journal. 28 Nov. 2012. Web. 08 Sep. 2014.
