LAKE BENTON, Minn. (DTN) -- Glenn Krog thought long and hard about what he wanted to leave after 60-plus years of farming. The single 79-year-old owned 860 contiguous acres just north of Lake Benton, Minnesota. He has been able to keep farming with the help of a hired man who has worked for him for 30 years. Neither Krog nor his employee has children.
Krog's main goals were to keep his farm together, reward his long-term employee and not let the state or federal government get any more money than necessary. Initially, he thought about giving his niece half and his employee half. But he worried that the entire farm would be owned by absentee landowners and the rental income would flow out of town.
RECIRCULATING FARM INCOME
Enter Patrick Costello, a rural attorney from Lakefield, Minnesota, active in the American Agricultural Law Association, who has advocated for rural towns for 30 years. Over the decades, he has seen small towns lose financial support as farmland ownership moved out of town to non-farm heirs. He wondered if there was a way for a farmer to give a portion of his land to the community that would keep the farm together, benefit a long-time tenant and leave a legacy to his family and his community.
In fact, community foundations are springing up across rural America to do just that. First, to better serve farmers such as Krog, Minnesota had to change its anti-corporate farming law to allow individuals and private foundations to make retained farmland gifts to public charities as exit strategies either upon closing up foundations or making estate plans, explained Costello. Small hospitals or small churches that found themselves going out of business also had another option of handling their farmland assets, Costello added.
"Farmers spend a lifetime putting together a farm unit and they really hate to see it split up and sold off, even after they've gone," said Costello. An exemption to Minnesota's corporate farm ownership law allows the foundation to own a farm and benefit from its earnings.
Krog worked with Southwest Initiative Foundation, which operates in 18 southwest Minnesota counties and is based in Hutchinson. He gifted a half section of farmland to the community foundation's "Keep it Growing" program two years ago. Krog and his employee have the benefit of farming it until they pass away. Krog's niece will inherit the rest of his farm. Then, whoever is farming the home farm owned by Krog's niece has the right of first refusal to rent the portion owned by the foundation after the death of his employee.
Diana Anderson, president of the Southwest Initiative, noted, "Farm incomes go up and down. How farmers hold their wealth is in farmland. As they consider their estate options, farmers often realize that their net worth is more than they ever imagined and that their estates could be heavily taxed." The fact that farmers often receive charitable deductions for participating is another incentive.
Krog appreciates the double tax benefit -- an annual charitable deduction on his income taxes now and by gifting the property while he is still alive, it whittles down his estate value, reducing his future estate tax exposure.
The Community Foundation in Lorain County, Ohio, is another group that will continue to own farmland after receiving it through their "Forever Farmland" program.
"Essentially, we promise to keep gifts of farmland in production as long as we can turn a net profit from leasing to have a charitable impact as advised by the donor," explained Brian Frederick, president and CEO of the Community Foundation. "Ten years ago, we received 300 acres by bequest and we've been farming it to provide agricultural scholarships to youth in our community. A community foundation preserves community assets to benefit future generations and farmland is one of our most prized assets."
Minnesota's Southwest Initiative Foundation receives about $80,000 per year on its two managed properties. Six other properties have named the foundation in life estates. The foundation will receive the income from those properties when the life estate beneficiaries pass away.
Helping his community is important to Krog. Lake Benton, population 680, boasts a grocery store, hardware store, health clinic and community center. Krog proudly shows off the refurbished opera house. "You've got to come back this summer," he said. "They're putting on Fiddler on the Roof. It's going to be great."
Think of the revitalization that could occur in rural America if aging farmers would donate a portion of their farmland to their communities, Minnesota attorney Costello said.
Not only does the farm owner benefit from the charitable deduction and the knowledge that his legacy will be carried forward, but local communities receive a steady income stream to invest in area projects. Often the long-term tenant benefits because the landowner wants to keep him on the farm.
Geoff and Leann Johnson have farmed Bob Remik's land since 1996 even though Bob passed away in 2000. "Bob was a kind and giving farmer and artist who had no children. It was a privilege to farm his land," said Geoff Johnson. Remik gifted his farm to the Southwest Initiative with the stipulation that his then-current tenant, Johnson, could continue to farm it, paying a fair market rent. Although the 230 acres, 180 tillable, is a small portion of Johnson's 2,300 farming operation near Windom, Minnesota, he appreciates the stability of knowing that it will continue to be part of his operation.
The Johnsons are now helping a young farmer start in farming. "Our two daughters indicated they did not want to come back to the farm, but I knew I needed more help to continue. A friend of our daughters ... who grew up 90 miles away came available in May 2011 and has been working with us since then. He's a very hard worker and good at what he does."
After two years as a wage earner, their employee had the opportunity to rent a farm near Johnson's operation and has since rented a second farm. Living with the Johnsons allowed him to save his money and buy his first tractor.
Geoff Johnson enjoys paying it forward. "Advice from one of my landlords has always stuck with me," he said. "'The more you give, the more you get.'"
EDITOR'S NOTE: DTN's ongoing Senior Partners series examines the financial, legal and emotional hurdles farmers face as they transition farm ownership from the senior to junior partners. For related DTN articles on donor-advised funds and community foundations go to DTN/The Progressive Farmer's In-Depth site at http://www.dtn.com/… and see "Share Your Good Fortune," March 27, 2014; "Give and You Shall Receive, " Feb. 11, 2013; and "Landowners Share the Wealth," Oct. 20, 2011.
Elizabeth Williams can be reached at email@example.com
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