Do You Trust Your Land?

A trust may help you and your family with farm succession and retirement.

- By Blake Miller Financial Advisor and Balancer Breeder. Follow Blake at mblakemiller.com and marblecreekfarms.com

If you'd ask any farmer to name their largest asset, most likely they would say their land.

Land is the underlying asset that allows you to generate an income. It's critical to your family's wealth and legacy, and must be protected. One strategy some may use to protect land is to insulate it within a trust.

The Pros and Cons

There are different reasons to place assets into a trust. Maybe they are worth millions of dollars, and you're worried that estate taxes may diminish their value. Maybe you want to control how those assets get used, when the assets can be sold, and how much of the principal balance or interest income can be accessed.

If designed properly, trusts also offer asset protection. Assets are gifted or sold to a trust and owned by the trust, not an individual. They can also be valuable for setting up the ownership and continuity of operations to the next generation. Trusts can help heirs avoid the often expensive and time-consuming process of probate, and possibly reduce the burden of estate taxes on beneficiaries. In most cases, you have ample latitude about how you set up the trust and its terms, such as how the land is used and who can use it.

There are also downsides. “One of the benefits of owning land individually is that at death, the property generally receives a step-up in basis,” said Greg Smith, partner at Georgia law firm Conger & Smith and a real estate law specialist. “If the land has been transferred into certain types of irrevocable trusts that remove it from the taxable estate, that step-up in basis may be lost.”