Do You Know Your Options for Inheriting Farmland?
- Craig Kaiser
- Dec 17, 2024
- 7 min read
Inheriting farmland, or just a large acreage of land, can be stressful if you have no idea what to do. There are many options that landowners have if they are inheriting land. For a quick option, landowners can sell the land and make a quick buck. However, many passive income routes will allow landowners to start or continue generational wealth. Land ownership can provide long-term benefits and be passed down to other family members.
Key Takeaways:
Understanding ownership is a crucial first step to research if you have inherited farmland.
Options for inheriting farmland include selling the land, leasing the land, or continuing to operate the farm.
Selling the Land: Provides a quick financial return but ends potential for generational wealth.
Leasing the Land: Offers passive income through various lease types, including farming, renewable energy, or carbon credits.
Operating the Farm: Requires planning and commitment but can generate income.
The Importance of Farmland Succession Planning
A thriving family agricultural business is founded on robust planning and clear communication. Every farm, ranch, nursery, and dairy operation is more than just a business; it is a legacy. Therefore, every agricultural enterprise should have a well-defined succession and estate plan. Farmland connects us to family, tradition, and heritage, while also providing vital food, fiber, fuel, and myriad other benefits to society.
In the United States, there are approximately 911 million acres of farmland, with nearly 40% (371 million acres) owned by individuals nearing retirement. Yet, only 29% of these landowners have succession plans in place. Although discussing farm succession planning and estate planning can be uncomfortable, such conversations and practical decisions are essential. They ensure that the farm continues to fulfill its vital roles for both your family and society, safeguarding your legacy for future generations.
Understanding the Ownership Type for Inherited Farmland
One of the first steps when inheriting farmland is to familiarize yourself with the inheritance laws in your state or country. These laws determine who can legally inherit the land and how disputes might be resolved if there's any disagreement among family members.
Key Considerations
Wills, trusts, and state-specific inheritance laws play a crucial role in determining how farmland is passed down through generations. Additionally, clear family agreements can help prevent disputes and ensure a smooth transition of ownership.
Wills or Trusts: If the farmland is part of a will or trust, its distribution and management might already be outlined. Check whether you’re named as a sole heir or if the property is shared among multiple parties.
State-Specific Laws: Each state has its own rules regarding property inheritance. For example, in some areas, "right of survivorship" might automatically transfer ownership to a surviving spouse.
Family Agreements: Many families choose to formalize their plans in writing to avoid conflicts. If there’s a family agreement in place, it’s essential to honor these terms.
Figuring out the type of ownership you have of the inherited property is important before you can consider the available options! Early communication with all stakeholders, including siblings or extended family members, reduces misunderstandings. Consider arranging a family meeting to discuss the shared vision for the farmland.
After you have a clear understanding of the farmland ownership, gather comprehensive documentation of your farm's assets, liabilities, and operational details. Consult with professionals such as estate planners, attorneys, and financial advisors who specialize in agriculture to develop a customized plan that addresses legal, financial, and tax implications. Working with real estate land professionals with networks in the local community is recommended. Organizations such as GeoRanch can consult property owners on the highest and best use for their properties while assisting with the entire leasing or selling process.
What Do You Do When You Inherit Farmland?
Whether farmland is inherited by an individual or a group, heirs generally have three main options: operate the farm, retain the land as an investment and lease it, or sell it.
1) Operate the Farm
If you’re passionate about farming or want to preserve its sentimental value, keeping the farmland could be a satisfying choice. However, operating a farm requires commitment, planning, and often, prior knowledge or experience. Landowners can hire a professional land manager to manage the land on their behalf. A land manager will have experience and expertise in managing large tracts of land. They can provide advice on how to best utilize the land for hunting, farming, or conservation purposes. This is especially helpful if inheriting a farm that you would like to keep running and making a profit. The land manager can make sure someone works the land and the upkeep is handled properly.
2) Lease the Farmland
Not ready or able to manage the farm yourself? Leasing farmland allows you to retain ownership while generating income. Farmers looking for land to rent, especially in high-demand regions, might be willing to sign long-term leases, ensuring consistent earnings.
Leasing land for farming, ranching, or hunting is not the only leasing option landowners have. Depending on the location, leasing the land for certain resources like solar, wind, carbon, oil & gas, battery storage, and mining could work better from a financial perspective. These types of leases can last between 1 to 50 years providing an easy passive income that is very appealing.
Solar Lease: The property qualifications for solar farms include 40 acres of buildable land and close proximity to energy infrastructure. It's important to note that solar leases are long-term in nature, with the lease contracts typically lasting 25-50 years that can be extended.
Wind Lease: Wind leases typically require around 80 acres of land. This lease contract typically lasts about 30-50 years.
Carbon Lease: Carbon leases involve the selling of carbon credits and carbon developers look for large tracts over 40 acres. These leases can be quite short around 12 months, but if it's an agricultural carbon credit program it can be 5-100 years long.
Water Rights: Companies or organizations looking for water resources are looking for large amounts of water available. This is definitely dependent on land location and the leasing could be seasonal based or long-term.
Oil & Gas Leasing: Oil & gas leases generally don't require a lot of available acreage because it is all below the surface. However, it is important to note that owning surface rights is not the same as owning the mineral rights.
Mineral/Mining Lease: The acreage needed for mineral rights leases vary depending on the type of minerals being mined. For precious mineral leases, a few acres are needed but for less valuable minerals, like sand, require large acreage amounts.
EV Charging and Battery Storage: EV charging leases need at least half an acre and battery storage needs at least two buildable acres. The length of these leases is typically between 20-30 years.
If you're interested in seeing if your inherited farmland qualifies for a renewable energy or Data center lease, get a free LandApp Property Report! Simply find your land on the map and view the Value Index Scores that rate your property's suitability for these different lease opportunities on a scale of 0 to 100:
3) Sell the Farmland
If farming doesn’t align with your goals or if the land isn’t generating income, selling might be the best option. This could provide financial liquidity for other investments or immediate family needs.
Tips for Selling Farmland
If you have inherited farmland you do have the option to sell the land if you don't plan on using it. Effectively selling farmland requires a blend of strategic planning, market savvy, and proactive measures. Successfully navigating the complexities of the real estate market and land sales can significantly impact the outcome of your transaction. Here are essential tips to guide you through the process:
Understand Your Market: Conduct thorough research on current trends and demand in your region. Familiarize yourself with recent farmland sales, pricing, and the types of properties that are in demand. This will help you set competitive and realistic expectations and make informed decisions based on solid data.
Enhance Curb Appeal: Just like residential properties, the visual appeal of your farmland matters. Ensure the land is well-maintained, free of debris, and visually attractive to prospective buyers. Simple improvements such as mowing, clearing overgrown areas, and repairing fences can make a significant difference in how potential buyers perceive your property.
Gather Comprehensive Documentation: Prepare detailed records on soil quality, water rights, crop yield history, and any property improvements. Comprehensive documentation can instill confidence in potential buyers regarding the land’s value and potential. Include maps, aerial photos, and any environmental assessments that highlight the land's attributes.
Leverage Professional Photography and Videography: High-quality images and videos showcasing the property’s best features can enhance online listings and marketing materials, making your farmland stand out. Consider using drone footage to provide a unique perspective and highlight aspects of the property that may not be visible from the ground.
Utilize Online Platforms: Take advantage of real estate websites and social media to reach a broader audience. Virtual tours, aerial drone footage, and engaging descriptions can attract interest from both local and distant buyers. Utilize platforms like Facebook, Instagram, and LinkedIn to share updates and engage with potential buyers.
Consider Timing: Market conditions fluctuate throughout the year. Selling during periods of high demand or when agricultural policies are favorable can lead to quicker and more profitable sales. Pay attention to factors such as planting and harvest seasons, economic conditions, and government incentives that might affect the demand for farmland.
Be Transparent About Potential Issues: Honesty about any existing issues such as zoning restrictions, environmental concerns, or water rights disputes is crucial. Transparency can prevent future complications and build trust with buyers. Provide documentation and be prepared to discuss how any issues can be resolved or mitigated.
Consult with Experts: Engage real estate agents, legal advisors, and financial consultants specializing in agricultural properties. Their expertise can help navigate complex transactions and optimize your selling strategy. Experts can provide insights on market trends, pricing strategies, and legal requirements that you might not be aware of.
Highlight Unique Selling Points: Differentiate your farmland by emphasizing unique features like organic certification, specialty crops, or renewable energy potential. Tailor your marketing to highlight these points and attract niche buyers. Mention any conservation efforts, water sources, or historical significance that adds value to the property.
Be Flexible with Negotiations: Flexibility with terms and conditions can make your offer more attractive. Consider offering seller financing, lease options, or other incentives to close deals faster. Being open to negotiating on price, closing dates, and other terms can help you reach a mutually beneficial agreement with buyers.
Options for Inheriting Farmland: Start Receiving Offers
After inheriting the property, the new property owner/ owners have different options to use the land or real estate. They can sell the property, sell the home, or even rent the property to tenants. But there is an option many new landowners might not know they have! Leasing your property is a way to keep the land within the family but also make an extra stream of revenue.
This option especially works well for new property owners who might not live in the same area or state as the inherited property and can’t keep up with the maintenance. LandApp provides property owners with a free property report to understand what potential uses their property’s resources could be used for. Then, with this information, these landowners can list their property for lease or for sale for free on LandApp’s marketplace for lease to start receiving offers!
