Using an Agricultural Conservation Easement to Protect Farmland From Development (Episode #281)

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Well, good afternoon, Michiganders.
It is Tuesday, May twenty third,

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twenty twenty three, and this is
Tuesday with Tom, Michigan's only weekly podcast

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where we answer your questions about the
state planning and the state settlement in Michigan,

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and we don't send you a bill. As always, I'm your host,

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Tom Doyle, a state planning attorney, lifelong Michigan resident, and ambassador

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for all things good in this great
state of Michigan. Welcome, Welcome to

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today's program. Well, just a
brief recap of last episode. I talked

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about several ways that Secure at two
point zero might affect your retirement planning.

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So, if you're in the process
of getting ready to retirement, retire and

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you're looking at your IRA, your
four one K, maybe what's going to

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be required by way of minimum distributions, what your options are going to be,

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et cetera. Or maybe you've got
a five to twenty nine plan for

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children or grandchildren. There's some changes
relative to those plans included in Secure at

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two point zero. So if you're
looking at retiring, I invite you listen

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to the last episode so that you'll
be up to date on what your various

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planning options are as a result of
this most recent legislation that was enacted during

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the Biden administration today's show. I'm
excited about today's show in particular because we

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have a guest, Kara O'Connor from
the American Farmland Trust, and during the

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program, I will be talking to
Kara about how you might be able to

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use agricultural conservation easement to protect farmland
from development. But as always, please

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remember what I'm about to discuss during
the program is for educational purposes only.

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It is not intended to be legal
advice. You need to work with your

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attorney to determine what is appropriate for
you and your estate plan. Well,

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Tara, I want to begin by
thanking you for joining me for today's Tuesday

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with Tom episode. It's a pleasure
for me to have you on the program,

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and I thought a good place for
us to begin today would be for

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you to provide just a brief explanation
of what the American Farmland Trust is.

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American Farmland Trust is a nationwide nonprofit
organization that cares deeply about protecting farmland.

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So we work to protect the farmland
that we have and also to enhance the

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conservation practices that are in place on
America's farms to make sure that we keep

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that important top soil and the soil
tilt that makes our farmland so productive.

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You've talked before a little bit about
the farm Legacy. What is the program

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all about? Farm Legacy is American
Farmland Trust opportunity to give farmland owners forever

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promise that their farm will always stay
a farm. So when landowners are thinking

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about what's coming next for their farm, they can consider donating the farm to

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American Farmland Trust in exchange for our
assurance that we will protect the land and

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make sure that it's always in the
hands of someone who's farming it. So

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it kind of raises us question,
what folks are a good match for that

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program. Yeah, it's a great
question. It won't be a great fit

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for lots of people who have a
farmland successor in place and already have a

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plan for selling their farmland or casting
it along to a child or a neighbor

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and next generation owner. But there
are lots of people that I talk to

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you on a daily basis who either
don't children, don't have children, or

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successors who are interested in farming the
land and they really want to think about

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what ensuring that their legacy of care
for the land stays in place for the

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future. And so the most common
candidates, the ideal candidates for the farm

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Legacy Program are people without children or
other errors who are interested in taking over

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the farm, or people who have
other assets that they might want to leave

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to their children, and the farmland
might be the component of their estate that

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they think about as a charitable donation. So that might be someone who has

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retirement income from elsewhere and might have
assets from elsewhere that they might want to

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pass along to their errors, and
the farmland is the thing that they're going

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to give philanthropically. The people who
are participating in the American Farmland Trust farm

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Legacy Program, are they donating their
farms during their lifetime or is that something

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that they're doing as part of their
estate plan. Great question, and the

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answer is we can do either or, I should say more specifically, the

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donor can choose either of those options, and there there are advantages each way

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depending on someone's unique situation. So
someone who donates their land during their lifetime

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will get a significant charitable tax deduction
that they can use the offset income on

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their income taxes and that deduction can
be carried forward for five years if they

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don't use it all in year one, two, three, or four,

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and so that can be a real
advantage to someone who is in the stage

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of life where they are still earning
income or maybe receiving income that's taxable from

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retirement accounts. Farmland donation can be
used to offset that at tax from that

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income. The other reason that sometimes
people want to make a donation during their

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lifetime and sooner than later is for
medicaid or long term care planning purposes.

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With that five year lookback period,
an asset would be considered part of someone's

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estate for five years looking backward from
the time that they would make a donation,

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and so sometimes people anticipating that they
might want to avail themselves of that

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medicaid or nursing home assistance in the
future, want to make sure that their

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past that look back period by the
time they might need nursing home care.

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So those are some of the reasons
why someone might make a donation during their

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lifetime. Someone might instead choose to
make a donation a farmland in their estate

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after their passing because they really like
to be in the driver's seat and own

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the farmland, manage the farmland,
whether or not they're actively farming. They

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may have a relationships with their renters
farmland renters, so making an estate gift

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allows someone to continue in that capacity
and also to continue to receive rental income

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for the land during their lifetime,
which can be a very nice stream of

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income during retirement. Now there's a
third option that is a hybrid and a

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neat combination of those two, and
that is a present donation with a reserved

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life estate or reserved life's use of
the property. So someone makes a present

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donation, they get the tax advantages
of making the donation during their lifetime,

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but with the reserved life estate and
reserved life's use, they continue to be

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able to receive the rental income,
They continue to be able to choose the

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renters and make management decisions about the
farm during their lifetime or as long as

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they care to. And that's a
key point because lots of people who are

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planning smart and taking care of their
affairs want to get all of want to

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take care of their affairs now and
know that if anything happens to them felt

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wise or life circumstances wise, they
have a plan in place for taking care

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of the farm when they're not able
to, and so a present gift with

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a reserved life estate is a really
nice solution for those people who are still

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healthy, still excited about visiting the
land, but understand that there may come

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a time when in short order they
don't want to be of energy farm land

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anymore. Then we have all the
paperwork in place and the plans in place

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for that land then to be the
responsibility in the American Farmland Trust when people

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are looking at do I gift it? Now? Do I gift it as

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part of my estate plan? Do
I do the retaining the life estate I

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gather? That obviously involves text planning, and then I'm assuming that they would

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be working with their tax advisors in
conjunction with your organization to see which of

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those fits as in their overall planning
exactly. Someone should always have their own

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legal advice and tax planning advice when
they're considering a donation of this sort.

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Now that being said, we are
really happy to work with those advisors because

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this is kind of a unique donation, and specifically we want to make sure

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that someone's tax advisors are aware of
the specific tax benefits that arise with the

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donation of farmland. So that's something
that we're happy to do to sort of

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point attorneys and advisors towards the relevant
parts of the tax code and the relevant

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statutes in state law and federal law
that they would look to in order to

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give give you, as you know, or that individual farmland owner good advice

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looking at it from an a state
standpoint, and federal estate tax is obvious

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they sometimes come into playing all of
this and the federal state tax exemption.

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I'm just curious in your situation with
the folks that you've been working with.

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The current federal estate tax is scheduled
a sunset in the first of twenty twenty

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six. That's going to make a
dramatic change if it happens to the federal

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state tax exemption going from around thirteen
million dollars a person to around six And

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I know part of our conversation with
clients now is to start planning for if

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that happens, because they can take
advantage of the thirteen million dollars now for

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a single person through gifting, and
it doesn't impact them if it happened to

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go down to the six and twenty
twenty six. I'm curious if that's part

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of the conversation that you're having right
now with any of your folks that you're

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working with about what might be around
the corner with federal state taxes. It's

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definitely a consideration, and that's where
getting that advice from your advisor, you

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know, an individual's advisor, is
really important. So that's one of the

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factors. But I never want to
rush people on a decision because farmland often

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has such emotional weight in someone's life. It's different than you know, a

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savings bond or something like that.
Often there are family ties to the land,

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and so we really want people to
make a decision on the timeline that

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is right for them. That being
said, you do want to make decisions

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so you have the peace of mind. And what I find almost invariably is

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that when I'm working with someone who
decides to make a donation of their farm

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and we sign those papers, an
American Farmland Trust says we will always make

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sure that this stays a farm,
and furthermore, will incorporate the conservation measures

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that are important to you. We're
going to make sure that the land is

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farmed well, that it's not abused, that the tops of those are going

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to run off into the stream.
When we sign on the divotted line and

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give that promise, it's like a
weight is lifted off of people's shoulders and

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they know that their land is secure
in the future, even after they're gone.

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So in that sense, I do
encourage people don't delay, you know,

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like, let's get that weight off
your shoulder so that you can walk

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into your retirement and your golden years
knowing that you've done right by the land.

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A much of the paperwork I gather
than you're able to prepare then I'm

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assuming it's working with the tax advisor
and the attorney. Any tweaks or whatever

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need to be made, but you
basically already have the primary documents. That's

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right. Yeah, because this is
something this is really what we do as

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American farmland interest is right and enforce
agricultural conservation easements. We have a good

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a team of attorneys on staff that
can tailor those standard documents for the situation

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that's right for the individual. As
I understand it, it's that agricultural conservation

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easement that's really being used to protect
the farm from being turned into for example,

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housing development, commercial site, etc. That's kind of what that easement

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is accomplishing if I've got that understanding
correct exactly. A lot of people don't

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realize that there's a way to ensure
that farmland stays farmland, and I think

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it grieves a lot of people to
think that their land would be turned into

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a subdivision or a parking lot or
something like that. But a lot of

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people think, well, I guess
there's nothing that I can do beyond my

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lifetime, and so it is a
great delight that I get to tell people,

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Yes, you can use a tool
called an agricultural conservation easement to dictate

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how the land is used or more
importantly not used in the future. Lots

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of people are familiar, for example, with a utility easement or selling mineral

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rights, and an agricultural conservation is
easement is the same way. So just

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like if you were to sell your
mineral rights beneath the ground, you still

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have all of the rights to use
the land above ground on the surface.

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And with an agricultural conservation easement,
if you separate the right to develop the

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land, you forego the ability to
ever develop that land in the future.

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But a private landowner still has all
of the other rights that are pertinent to

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land ownership. You still have the
right to farm the land, rented out,

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sell it everything. And so in
some ways people feel like, boy,

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that's not much to give up,
because I didn't want to developed anyway,

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you know. So that's the way
that we can make that promise.

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And an American Frontland Trust visits the
land every year for as long as any

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in per opportuity, as long as
any of us can imagine, to make

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sure that that promise is being upheld. We're going to be looking after the

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land forever. But agricultural conservation easement, can it be used for things other

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things like preserving soil and water conservation
practices something along those line, great question.

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We increasingly are adding some basic conservation
measures in easements or agreements that are

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adjacent to easements. So knowing that
forever is a long time, we don't

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want to get too prescriptive, but
we absolutely will write an easement and develop

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an easement that, for example,
preserves a wooded area or a wetland area,

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a grass waterway, make sure that
there are stream setbacks that are respected

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if there's a stream on the property, and frequently just have as part of

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the easement that there needs to be
a soil and water conservation plan in place

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on the land. That's really important
because, especially for a farm owner who

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has really worked hard to build up
the conservation practices, it is hard to

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think about someone coming in and undoing
that good conservation work that you work so

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hard to put in place. So
we work with people as much as possible

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to make sure that their farmland protection
arrangement honors the work that they've done and

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what they hope to see. What's
the if you will, ideal age or

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stage of life for someone to start
taking these steps and they want to protect

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their farmland if they're interested in doing
that great question. There are a couple

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of windows sort of points in someone's
life where this is a great opportunity to

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think about what's going to happen next
with the farmland. One is at the

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point of retirement, because that's an
ideal time when you're thinking about transitioning from

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having an earned income stream to income
coming from other sources. Farmland can be

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a rental. Income from farmland can
be a very nice source of income in

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retirement, and your tax situation is
likely to change at the time of retirement,

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so that's one really ideal point to
think about what's going to happen next

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with the land to make sure that
the income that you might be hoping to

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receive from the land is in place
and that you're getting most tax advantage out

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of that asset. Another ideal time
to think about your plans for your land

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is at that magic age of seventy
two or seventy two and a half when

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required minimum distributions start need to be
taken from any of your retirement account That

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is a time when you're going to
have some additional taxable income if you're withdrawing

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those required minimum distributions from your retirement
accounts, and so having a donation of

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farmland concurrent with receiving those distributions can
be a nice way to offset the taxes

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from those requirementium distributions. And the
third aspect that I do encourage people to

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think about is how long term care
planning fits into the picture. So,

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like we talked about earlier, we
want to make sure that any significant donation

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of this sort is well before you
anticipate that you would need a long term

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care If your plan for long term
care involves Medicaid or medical assistance, you

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want to do that do a significant
donation sooner rather than later to get past

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the five year look back window.
So far, what we've been talking about

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is farmland. I guess I'm curious. Can someone donate other types of real

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estate to the American Farmland Trust.
Yes, we would accept donations of a

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house or some other kind of real
estate, a vacation home. Now,

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we wouldn't promise to protect that as
farmland, of course, because it's not

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farmland in the first place. But
the nice thing about an organization like ours

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is that we have these real estate
attorneys on staff, and so we're perhaps

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different than some organizations in that regard
in that we are prepared to receive donations

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of real estate or real property.
Well, obviously, the point of donating

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to other real estate, I'm assuming
is American Farmland Trust would turn around,

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sell it, turn into cash to
help use as part of your operations.

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That would be the idea I assume, right. That's right, And so

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what's kind of neat to think about
is that if I'm someone who cares a

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lot about farmland protection, but I
don't happen to own a farm myself,

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I could donate my home to American
Farmland Trust. Knowing that the proceeds from

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a subsequent sale of that home go
to farmland protection. So I don't have

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to be a farmland owner to use
my assets to protect farmland. That's a

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pretty neat opportunity that anyone who owns
real estate has. When we receive donations

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of farmland, I should mention that
the typical process is that we protect the

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land with an agricultural conservation easement and
then sell that land to the next generation

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of farmers. Our view is that
farmland really is best managed by someone who

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lives there, someone who is directly
farming the land, rather than a nonprofit

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organization headquartered somewhere else. So we
generally are oriented towards having farmland into private

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hands. Our ownership period really is
simply to do that work of protecting it

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with the easement, and then we're
going to put it back into the hands

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of a private farmer. I also, likewise, client might not be farmers,

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but they might have investment stocks,
bonds, retirement plans, whatever,

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and they as well those sorts of
contributions could be made to the American Farmland

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Trust. That's right. One of
the things that we're seeing increasingly is generous

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donors donating their required minimum distributions from
their retirement accounts to American Farmland Trust.

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That's such a nice solution because it
prevents someone from incurring the taxes that they

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would otherwise incur if they were to
receive the cash from their retirement accunts.

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For lots of people, that's turned
out to be a really nice way to

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support organizations whose missions they care a
lot about. We're always honored to be

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able to use donations like that to
do our conservation and farmland protection work.

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Another question that comes to my mind
for people, let's say that want to

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include both gifts to their children and
gifts to charitable organizations in their estate plan.

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I know many estate planners in that
situation would advise them, for tax

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reasons, to give gifts of real
estate to their children and then give cash

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to the charities. From conversations Karat
you and I have had before, you

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questioned that conventional wisdom of going at
it in that way, Why yes,

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this is the point where I'm really
going to buck that conventional with them and

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say something different than what a lot
of people would hear. Like you said,

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a lot of attorneys or tax professionals
would advise someone give the land to

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your kids and give the cash to
a nonprofit organization. And the reason is

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that your children will receive stepped up
basis on something like real estate, so

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they won't encounter as many estate taxes
on land as they might with cash.

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However, I also talk with a
lot of parents and a lot out of

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children who realize that the children don't
have the same passion for owning farmland as

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their parents do. A gift of
farmland is only a gift if the children

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feel like it is. Land is
different than any other kind of asset because

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it is valuable, it generates income, and it can be sold for income.

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But it also comes with responsibilities like
property taxes, like insurance, like

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finding a good renter to operate the
land if you're not going to be a

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farmer yourself, and those are responsibilities
that not all airs are interested in taking

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on. So it may feel more
like a gift to have cash without strings

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attached than to suddenly become an owner
of farmland, maybe in a different state

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than one than a child or an
air is living in. I also think

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that there's an important responsibility for conservation
than anyone who owns farmland bears, So

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we want to make sure that whoever
is going to own that farmland is really

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prepared to do right by the land. So that's why I invite people to

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really think carefully and talk with your
family. Talk with your children about whether

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they want to own farmland, and
if not, then think about making the

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farmland as a charitable non donation and
some other assets to your heirs that they

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can use as the English. The
other problem I see it from kind of

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go along with what they're saying is
in the event many clients have multiple children,

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if you make multiple children owners of
the farmland, that also complicates everything

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because you can now have multiple children
who don't have an interest in the farmland

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who now own it and have to
figure out what to do with it.

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Absolutely, cash or stock is infinitely
divisible between multiple owners. Land is not,

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and you risk fracturing the farmland and
dividing it into parcels that really aren't

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usable, or you risk having to
know saddling your airs with tough conversations about

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what to do with the land in
the event that they don't agree. And

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that's a very real prospect that you
know one or two children want to sell

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the other one doesn't and now they're
at loggerheads. So that's not the legacy

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that you want to leave to your
heirs. Tara, thanks again for joining

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us for today's program. Shortly,
I will be providing contact information for the

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American Farmland Trust for any of the
listeners who would be interesting and having further

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conversation about what an agricultural conservation easeman
is and how they might be able to

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use it to protect their farmland.
Tara, thanks again for joining us for

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today's program. Shortly, I will
be providing contact information for the American Farmland

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00:27:11.000 --> 00:27:18.680
Trust for any of the listeners who
would be interesting in having further conversation about

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00:27:18.119 --> 00:27:23.599
what an agricultural conservation easement is and
how they might be able to use it

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00:27:25.079 --> 00:27:41.039
to protect their farmland. Well,
that's going to be it for today's show,

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but please remember that Amanda and I
would be honored to have the opportunity

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to help you protect your loved ones
by putting together your estate plan, amending

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00:27:49.200 --> 00:27:53.319
a plan that you already have,
or assisting you in settling estate. For

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00:27:53.400 --> 00:28:00.680
more information on how to contact us
and arrange an appointment, simply visit LAWPC

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00:28:00.880 --> 00:28:07.440
dot com. There you will find
links that will allow you to set up

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00:28:07.480 --> 00:28:11.559
in person or virtual consultations. Also, we have our legal store where you

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00:28:11.599 --> 00:28:18.440
can actually order individual documents online.
And as always, though, if you

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have a comment about the program,
a topic that you'd like to have me

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00:28:22.279 --> 00:28:26.160
discuss, questions that you'd like to
have answered, please please send me an

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00:28:26.160 --> 00:28:30.680
email Tom at Tuesday with Toom dot
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Thank you again for spending some of your

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00:29:06.759 --> 00:29:11.200
time with us today and as always, I hope that you have an awesome

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00:29:11.319 --> 00:29:21.720
day and an awesome week in Michigan. Stay safe. Tuesday with Tom has

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