How to Keep Farmland in the Family

Owning land is a significant investment that can benefit both landowners and their families. However, given growing farming expenses, many landowners are weighing the benefits of selling the land vs. passing it onto their children.

Although selling the farmland can bring much needed liquidity, there are several reasons why you should consider keeping your farmland in the family. 

Why keep your farmland in the family?

Although farmland is a valuable financial asset, its value is more than monetary. Ask any farmer, and they’ll tell you that farming is a way of life as much as a business. 

If you already own farmland, selling it off is a big decision. There are a number of reasons why you may feel you need to do so:

• Inability to maintain the land

• Need access to cash in the short term

• Don’t want to burden future generations with maintaining the asset

These are all important considerations. However, there may be other ways to solve them besides selling off the land. We’ll consider those options below. For now, let’s look at the benefits you can receive from keeping farmland in the family. 

Legacy

For many landowners, handing down their land to the next generation is a source of pride and fulfillment. It’s an essential part of family history. Preserving it helps connect previous generations to future ones. 

What’s more, many landowners, particularly owner-operators, have invested blood, sweat, and tears into the land. Handing that down to the family is part of their legacy, and they want their children and grandchildren to be part of the land’s story. 

Community, ecosystem, and diversity

Farmland doesn’t just benefit the owner, but the entire community and ecosystem surrounding it. By keeping your farmland in the family, you’re empowering your children and grandchildren to continue contributing positively to the wellbeing of their neighbors. 

Farms provide an economic foundation for rural communities. This includes supporting local retail operations, grain storage facilities, farm mechanics, and the like. Without farm operations, none of these businesses have work. 

When maintained in a sustainable way, farmland also contributes positively to the environment and surrounding ecosystem. By supporting a diverse range of crops and animals, farmers can maximize the productivity and profitability of their land, protect against risks and uncertainties, and support the health and vitality of the local ecosystem. 

Long-term financial gain

Naturally, it’s important to consider the financial upside of keeping farmland in the family. Like any type of real estate, farmland is highly valuable because it both appreciates in value, and can serve as a source of passive income. 

While the most common option is to run a traditional farming operation, there are many ways to generate income through farmland. There are sure to be family members who would like to take advantage of this as an option. 

Legal methods for transferring land ownership

When it comes to passing farmland onto future generations, it’s important to consider all the legal and tax implications at play. That way, the land becomes truly an asset, and not a burden. 

Depending on specific laws and regulations in your local area, you may face certain requirements on how land can be used or transferred. However, here are the primary methods and some things to consider with each of them. 

• Gifts. Gifting land is complex and may be subject to taxes. Land can be given as a gift while the owner is alive or through a will after death.

• Life estates. Life estates are a popular option for transferring farmland, as they allow the beneficiary to own the property for their lifetime but prevent them from selling it before death. 

• Wills. A will allows landowners to name their beneficiary, who will be given land ownership upon the landowner's death. Property value passed on through a will is typically subject to estate taxes.

Keep in mind that we’re not lawyers, and you’ll want to consult with your own legal counsel to make the best decision possible. 

How to maintain your farmland for future generations

If you’re going to keep your farmland in the family, there’s a responsibility to not only maintain it, but maximize its value. This involves proactive planning and strategy. Here are some steps you can take now to improve your situation in the future. 

1. Appraise the land value

Although you may have an idea of what your land is worth, there are good reasons to get a formal appraisal. First and foremost, an appraisal can provide an accurate and objective assessment of the value of the land—so you aren’t relying on guesswork. 

An appraisal can provide valuable information about the land’s value, potential uses, and quality, which can help make informed decisions about managing and using the property. For example, it can help decide whether to lease the land for farming or other purposes.

2. Improve the quality of your land

Conservation practices in farming can provide numerous benefits for long-term investment. These practices can help improve the soil's health and productivity, which in turn improves the value of the land. 

By using cover cropping, no-till farming, and crop rotation techniques, farmers can maintain the structure and fertility of their soil, allowing it to retain moisture and nutrients better. This can lead to increased yields and more resilient crops, providing a more stable and profitable source of income for farmers over the long term.

Additionally, diversity in farming can be crucial for maintaining the health and vitality of the local ecosystem. By supporting a variety of plant and animal species, farmers can help protect the natural processes and services essential for agricultural production, such as pollination, pest control, and soil health. This can help maintain the land's long-term viability and the broader agricultural system.

3. Partner with tenant farmers

Proper management of a family farm is crucial for ensuring its long-term success. This includes making smart decisions about crop rotation, irrigation, and other farming practices and investing in the right equipment and technology.

If you don’t want to take on this burden yourself, you can always partner with a tenant farmer. 

As a landowner, it’s essential to have regular communication and collaboration with the farmers who operate it. By starting a conversation about management, we can discuss the goals and expectations for the land and any potential challenges or concerns.

This ensures the land is used and maintained in line with your' wishes. Discuss the long-term sustainability of the land and the strategies that landowners can implement to protect and preserve it for future generations.

But it sure doesn’t end there; always back up the convo with a solid written agreement.

Discuss individual objectives and priorities for the land, as well as the financial expectations and constraints that there may be. This ensures the land is used and managed to meet personal and financial goals.

Additionally, this fosters a more positive and productive relationship between you and your farmer. By outlining an agreement concerning personal and financial goals, landowners can better support their farmers and work together to achieve their shared objectives for the land.

Final thoughts on keeping farmland in the family

There are a number of reasons to keep farmland in the family, both financial and otherwise. While selling off farmland may seem appealing in the short term, your family will see a long-term benefit if you keep that land. 

A better solution to the short-term cash problem is to farm the land with a cash rental agreement. This enables you to collect steady, dependable income with minimal risk exposure. 

Learn more about how CommonGround can give you the information, support, and expertise to set up a cash rental agreement with a local farmer.