Earlier this year, Legacy Farmland Trust was launched as a new tool for farmers who may not have the next generation to farm but want to keep the land in trust for their family and multiple generations.
“It was born through witnessing the family dynamics and what farmland ownership can do to families,” Eric Mueller of Legacy Farmland Trust says. “When it came time to sell, not all members were on the same page.”
The creators of the trust saw that in these scenarios, where multiple family members have a stake in an asset, there is limited ability to liquidate or transfer it without everyone agreeing.
To solve the issue, they created a fund where instead of collecting dollars to invest, they take contributions of farmland.
“The farmer is able to contribute an asset to the fund and convert it into fund units that give them a ton of flexibility around transferring and gifting to the next generation,” Jared Hollinger of Legacy Farmland Trust says. “They’re selling a piece of an asset without selling the farm.”
Paul Neiffer, a farm CPA and host of The Top Producer Podcast, interviewed three members of the Legacy Farmland Trust team to learn more about how their approach works for some farmers.
Family members who want to sell their share of the land now have fund units they can sell immediately or over time. Those who didn’t want to sell have interest in their land, as well as the other assets in the trust – allowing them to diversify their holdings.
“Instead of that farm owner owning just that one asset, they now have shares in our fund which gives them exposure to all the assets in the underlying fund,” Hollinger says. “That gives them diversity and it gives them opportunity because a farm may be performing poorly one year or excellent another year. And by having exposure to the entire fund, it goes ahead and insulates them from any kind of bad activity that may occur.”
It’s important to note that contributing into the fund does not create a capital gains event.
Farmland Legacy Trust can also accommodate future generations who would like to come back to the farm.
“If a grandchild is up and coming or if an unnamed heir is contemplated as somebody who may want to own that land 10 or 20 years from now, they can be designated as the first right to purchase and have the ability to pull the asset back out of the fund in the future,” Hollinger says.
They can also designate a right to hunt on the land or a right to gather on the land if the family is no longer actively farming but would still like access to it.
As far as the type of land best suited for the trust, Hollinger says the ideal asset to come into the fund is one with little to no debt and a fair market value of $2 million or greater. The land should also be primarily farmland – not timber or land with permanent crops such as apples or grapes.
If a landowner would like more information about contributing to the trust, they can fill out an interest form on the company’s website.
After that, the owner will provide details around the asset and Legacy Farmland Trust will come back with a proposal. A third-party appraiser then does a series of due diligence to determine the asset’s value and the process moves onto closing. Hollinger estimates the process takes about 90-100 days to go through.
To learn more about Legacy Farmland Trust, listen to their episode on the Top Producer podcast.
