Farmland, like many other hard-to-value assets, tends to carry with it a lot of emotional attachment. Farmland also can be hard to deal with in an estate plan because of the challenges of multiple owners and the complexity of the estate tax as it’s applied to farm-related assets.
Given that there are more than 800 farms in North Central Massachusetts, you or someone you know may own farm property. Although the number of farms has been dropping slowly but steadily since 2000, still, millions of dollars of wealth are tied up in farms as agricultural land continues to be valuable.
Farmland, like many other hard-to-value assets, tends to carry with it a lot of emotional attachment. Farmland also can be hard to deal with in an estate plan because of the challenges of multiple owners and the complexity of the estate tax as it’s applied to farm-related assets. For these reasons, it is worth exploring philanthropic options if you own farmland.
Multiple ways to structure a gift
A fund at the Community Foundation can receive a tax-deductible gift of farmland in a variety of ways. An outright gift is always an option; lifetime gifts of farmland held for more than one year are deductible for income tax purposes at 100% of the fair market value of the property on the date of the gift, which also avoids capital gains tax and reduces the value of the client’s taxable estate. Other ways to give farmland include a bargain sale or a transfer to a charitable remainder trust which produces lifetime income for you.
Keeping the family together
A gift of farmland to a fund at the Community Foundation doesn’t just provide tax benefits. The gift also helps you overcome the emotional challenges associated with letting go of an asset that in many cases has been in the family for generations.
By donating farmland to a fund at the community foundation, you can work with the Community Foundation to extend the emotionally important, family-related dynamics that were previously linked to the land, even after the Foundation sells the farmland and your fund holds the proceeds. For example, multiple generations of family members can serve as advisors to the fund and collectively recommend grants to charities that carry on the values held by the family during the years it operated the farm, such as funding agricultural scholarships, promoting sustainable farming, or supporting programs that educate entrepreneurs about how to build a successful farming operation.
A cautionary note
Closely related to gifts of farmland to charity are conservation easements. Conservation easements can be a tax-effective way for a client to fulfill charitable intentions with real estate, but these vehicles must be carefully constructed to avoid landing on the IRS’s radar.
We are happy to help you and you structure a gift of farmland to a fund at the Community Foundation so that the client’s family members can continue to work together even after the farm is sold. Please reach out anytime!
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