For families with farmland, estate planning isn’t just about distributing assets – it’s about preserving the family’s legacy, protecting the land for future generations, and minimizing estate tax burdens. Many farm owners have invested years, sometimes generations, in building their operations, so it’s important to consider estate planning strategies uniquely suited to agricultural families, focusing on preserving farmland and minimizing estate taxes.
Setting Up Trusts to Preserve Farmland and Minimize Taxes
Trusts can be powerful tools for agricultural families looking to manage estate taxes and control how their land is used by future generations. Two common types are revocable and irrevocable trusts.
• Revocable Trusts: These can be modified or dissolved by the owner during their lifetime. They provide flexibility in managing assets and allow the family to avoid the probate process, which can be lengthy and expensive. Though revocable trusts don’t directly reduce estate taxes, they simplify the transition and can offer some privacy benefits.
• Irrevocable Trusts: Once established, these cannot easily be changed. They are effective at reducing estate taxes because assets placed in an irrevocable trust are generally not considered part of the estate, thereby reducing the estate’s taxable value. This makes irrevocable trusts an attractive option for agricultural families who want to preserve farmland for heirs and avoid tax erosion.
Specialized trusts, such as the Qualified Personal Residence Trust (QPRT) and the Grantor Retained Annuity Trust (GRAT), can also be useful. These allow the landowner to retain some rights to the property during their lifetime while gradually transferring ownership to heirs in a tax-efficient manner.
Gifting Strategies to Gradually Transfer Wealth
Gifting is another effective strategy for transferring ownership of farmland and other assets to heirs while minimizing estate taxes. In calendar year 2025, the IRS will allow individuals to give up to $19,000 per person ($18,000 in 2024) each year without incurring gift taxes. For a married couple, this means they could transfer up to $38,000 per child annually, gradually moving assets out of their estate and reducing their taxable estate value over time.
Lifetime gifting exemptions also play a role in estate planning for families with farmland or ranches. Currently, individuals can give up to $13.61 million over their lifetime without incurring federal gift taxes. By carefully structuring gifts within these limits, farmers can transfer significant portions of their land and other assets to heirs while mitigating the estate’s tax burden.
Additionally, gifts of fractional interests in farmland can potentially qualify for valuation discounts, as minority ownership interests are often worth less than controlling interests. This strategy can further reduce the taxable value of the estate.
A Comprehensive Estate Plan: The Key to Legacy Preservation
The complexities of estate planning for agricultural families often require a multi-faceted approach. Trusts, strategic financial planning, and gifting strategies work together to create a framework that protects farmland and ensures heirs can carry on the family’s legacy.
For families invested in farms or ranches, it’s vital to work with an estate planning attorney and financial advisor familiar with agricultural issues and tax laws. An experienced team can help tailor a plan to meet the family’s specific goals, ensuring that the land remains in the family for generations to come.
Andrea McKinney is the Senior Vice President of Central Trust Company
