Intergenerational Land Transfer

April 15, 2007 at 1:03 pm Leave a comment

Many family forest owners envision their land staying in the family for generations. But does your family share your dreams for the future of your land? Do you have a plan in place to keep the land intact?

Woodland trail in winter, Kerrick MNThis page should help you think about transferring your land to members of your family, other individuals, land trusts, or others. Planning ahead can be the difference between keeping the land intact and your heirs being forced to break it up to pay the taxes. Content on this page is based in part on Oregon State University’s Ties to the Land curriculum.

Your vision and goals

First and foremost, you need to have a clear idea of your vision for the future of your property. Is the land a priceless heirloom that you hope will always be part of the family? Or do you see it as a valuable asset that your heirs may legitimately decide to sell? How would you feel if the land were to be subdivided and sold?

Your family

Once your vision is clear, you need to know how your potential heirs feel. Do they share that vision? Are they as tied to the land as you are? Do they know enough about land stewardship to take over? Land stewardship is not easy, and if your heirs don’t share your knowledge and commitment to the land, your vision may be less likely to succeed.

Your heirs may be unaware of your vision, or about their possible roles. They may hope and dream of future land ownership but be uncomfortable approaching you about your plans for the land. Change is hard to discuss, particularly when it involves losing loved ones and cherished assets. (Read more about how to plan a family meeting.)

But, communication is key. It’s hard to overstate the importance of clear communication about your vision and how your heirs fit into it. The earlier you start, the better: Involve grandchildren in the land. Help their parents understand how important the land is to you, and help them build the knowledge and confidence they need to manage it well.

Legal and financial issues

Once your family agrees on a shared vision, it’s time to talk to a land transfer professional. Many options exist for the permanent protection and ownership of your land. Some options are as follows (modified from the Ties to the Land workbook):

  • Sole ownership / sole proprietorship: This is the simplest arrangement, but can leave the owner vulnerable to liability. Income is reported directly on the owner’s tax return. Read more.
  • General partnership: Under a general partnership, more than one individual owns the business. Each partner is individually financially liable. Income is reported on the partners’ individual tax returns relative to the share of ownership.
  • Family Limited Liability Corporation: If the family prefers to retain all ownership rights, an LLC can confer some legal and financial protection, set mutually agreed rules for future land stewardship, clarify ownership, and establish operating and decision processes. Taxation is the same as in a general partnership.
  • Family Limited Partnership: This is a partnership made up of family members. Under an FLP, the general partners can begin sharing ownership with their heirs. Taxation is the same as in a general partnership.
  • S- and C-Corporations: These are federal and state designations that combine some elements of partnerships and some of corporations.

You can read more about forms of land ownership here. Each form of ownership has advantages and disadvantages. Each family situation is different, and different forms of ownership may be better suited to some families than others. These are complicated decisions, and professional assistance is essential.

In addition to the form of ownership, many other financial and legal tools may be available to advance your family’s vision. For instance, conservation easements ensure permanent land protection.

Learn more at an intergenerational land transfer class

The Woodland Advisor Program offers a two-part intergenerational land transfer class. Each two-part class includes instruction from Extension foresters, Extension family resource management educators, a certified public accountant, and an attorney.

Registration costs $100 per extended family, including two excellent workbook handouts and opportunities to pose your questions to land transfer professionals. More details on these classes are posted on the Woodland Advisor class calendar.

Other sources of information

A new website at Oregon State University called Ties to the Land may help you begin your planning.

The July/August 2007 issue of Tree Farmer Magazine includes an excellent article called Preserving the Family Forest (PDF, 400KB).

Another great resource is Estate Planning Options for Family Forestsfrom the US Forest Service.

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News and information of interest to Minnesota woodland owners. Sister site to MyMinnesotaWoods.org.

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