Nearly half of cropland farms are owner-operated in the U.S. Every farm operation has a change in ownership eventually: when that time comes, how will things take shape? Answering this question is more challenging when there isn’t a younger farmer in the family in line to be a successor. Land ownership legislation (and specifically how it relates to farmland) varies by region, with different plans and desires informing aging growers in their plan of action.
The following highlights some of the options available for farm ownership change, with legal references made being sourced from varying U.S. states. Please note that this is merely a conversational summary on the topic, and by no means exhaustive or prescriptive.
Auction
Selling a farm by way of an auction is a historically common practice that continues today. Ideal for circumstances where a quick sale is desired, transition from an owner without a successor to someone new can take place with a three-to-four month turnaround. Auctioning is a great way to avoid harboring equipment costs for too long. But, there are still costs associated with auctions. The process doesn’t encompass the hand-over of pre-existing business operations, as auctions focus on liquidating the farm assets. An immediate capital gains tax bill follows the sale, along with auction fees.
Family transfer to an off-farm heir
Transfer to a family member who won’t be a business operator can be accomplished by creating a will or trust. In this scenario, all assets will be transferred upon the owner’s death. It may be prudent to enlist a farm manager to facilitate the shift or end of farm operations, which might include leasing land or facilities to a new operator, or the sale or auction of farm equipment.
Merge
When one farm can absorb the ongoing operations of another farm, this merge allows the absorbed business to continue on. Merges such as this typically occur when there is a willing neighboring operation to take on a retiring farmer’s legacy and incorporate it into their own venture. Succession might take place over a number of years in a phase-out process. The new operator may rent land, bins and shed still owned by the retiring farmer, and equipment ownership may be slowly transitioned over. Be mindful of the tax procedures involved with sale of depreciated items.
Acquisition
Selling the property as well as the ongoing operations of their farm to another farmer who runs it as their own may take several years to accomplish, but can offer tax advantages and result in minimal waste of existing farm infrastructure. There’s great potential for a rewarding outcome with an acquisition approach, in that the sale may help provide an opportunity for a beginner to succeed. Keep tight planning at top of mind when entering an acquisition process, as well as the risk of cash flow issues surfacing over the long process.
Land trusts + transfer to community
Land trust designations typically have conservation at their heart, and can be named as a beneficiary in a will or living trust. They function to conserve working farms, historic farms, forests, and other open spaces and prevent the use of land from drastically changing shape, without relying upon a single owner. But they can also be a method for transferring land to communities that have been disproportionately and systematically deprived of access and ownership for generations. There is also increasing precedent in the U.S. of individuals choosing to give land directly to Indigenous nations, in an act of repatriation.
Community land trusts (CLTs) and conservation land trusts are similar, except that community land trusts specify that land ownership is by and for a community. In a farming context, a CLT can ensure permanent access, control, affordability and stewardship of a land for a community and its future generations. A CLT may lease land to specific members for farming operations, like the Vermont Land Trust has done with Pine Island Community Farm. If financial compensation is not a pressing factor in the decision making when choosing what to do with farmland, scoping out ways to give or return land to communities is a viable option.
Whatever is decided, it’s never too early to start considering what a farm’s next chapter might look like.
