Having a well thought-out plan for who will own your land and how it will be managed after your death ensures that it will be successfully transferred to future generations without being sold or developed. It can also eliminate any tax liability.
Things to Consider:
- Working landscapes tend to be land rich and cash poor. Without fluid assets in your estate, your heirs may have a hard time paying estate taxes and have to sell part of the land. Consider using estate planning techniques to eliminate estate taxes or provide funds for estate taxes to ensure your land remains whole.
- What will the transition of ownership and management look like? An estate plan can also be a framework for transitioning ownership or management of your land. Consider whether you would like to transfer ownership and management responsibilities gradually to your heirs while you are alive or at your death.
- Fair is not always equal. If you leave your estate in equal portions to multiple heirs they may have problems agreeing on how to split it up. It may be the case that only one heir would like to continue managing the land, but he or she may not be able to buy out other heirs. This could result in the land being sold for development or a court ordered partition.
Tools to Eliminate Federal Gift and Estate Taxes
You can transfer your property to your heirs while you are alive (as gifts) or upon your death (as your estate). Both of these kinds of transfers may require that you pay taxes. However, if you create a plan to transfer your property in amounts that are less than the gift tax exclusion amount or the estate tax exclusion amount you may not be subject to federal taxes.
Another estate planning tool is to place a conservation easement on your land. A conservation easement will reduce the value of your land, because it eliminates valuable development rights, and ensure that your land remains whole for generations to come. If you qualify under IRS rules, your estate can also elect to take a estate tax deduction for 40% of the value of the land subject to the conservation easement.
Estate Planning Tools
You may consider creating a business entity under which your land will be owned and managed. As a Limited Liability Company or Family Limited Partnership, your land can be owned by multiple people and managed by just one. It will also ensure that the land and business remains a whole entity, with heirs participating in the way that they wish.
Another estate planning tool is a trust. There are a variety of different trusts, such as a Grantor Retained Annuity Trust or Charitable Remainder Trust that allow you to determine the management of your land after it has been transferred to your heirs. In addition, trusts can reduce gift and estate taxes.
If you do not have an heir interested in taking over your family farm, then you might consider finding a beginning farmer that does. There is a wide array of programs across the country that link retiring farmers with beginning farmers to keep land agricultural.
Finally, to increase the fluid assets in your estate or ensure the heirs not taking part in owning or managing the land are also provided for in your estate plan, consider taking out life insurance or a mortgage on the land.
Create your Land Legacy
Creating an estate plan is about more than just reducing tax liability, it is vital to ensuring that your land legacy continues for generations to come. It is important that you set up your heirs for success by using tax and estate planning tools that create a framework for the future management of your land.