Sower, a visionary company in the investment sector, has introduced the pioneering Legacy Farmland Fund (LFF), an innovative investment vehicle that empowers farm-owner Contributors to exchange their farmland for Fund Units. In doing so, they may enjoy valuable tax-deferred benefits and participate in the financial returns of a diversified pool of farmland assets. Contributing farmland into the Fund, via a 721 asset exchange, can result in a win-win scenario for a landowner’s legacy and financial goals.
What is a 721 Contribution Fund in relation to farmland?
A 721 Fund is an asset contribution vehicle that can be used as an alternative to a 1031 exchange. Its legal basis provides “that no gain or loss shall be recognized to a partnership or to any of its partners in the case of a contribution of property to the partnership in exchange for an interest in the partnership.”
This means that a farm contribution into the Legacy Farmland Fund defers capital gains and provides flexible asset division and transferability. Let’s look at the benefits of this innovative estate planning tool.
Why contribute a farm to the Legacy Farmland Fund?
Physical real estate is often difficult to sell and can lead to conflicts over the division of the assets. When an investor is looking to sell appreciated physical assets, a contribution of those assets to a 721 fund can be a beneficial strategy. Because contributions to a 721 fund are generally tax deferred, the value of the contribution is greater than if the asset was sold and the after-tax proceeds were reinvested.
As a Unit holder in a 721 fund, income and appreciation benefits continue to be realized during an owner’s lifetime. Units can be fully or partially liquidated, through sale or gift. In summary, the three main benefits of Contribution are:
- Tax-Deferred Benefits: Contributors can maximize the value of their contributions while deferring capital gains taxes.
- Participation in Returns: Contributors have the opportunity to share in the returns generated by pooled farmland assets within the Legacy Farmland Fund.
- Flexible Estate Planning: Fund Units accommodate increased flexibility for both simple and more complex estate planning which includes philanthropic gifting.
Contributing a farm to the Legacy Farmland Fund provides a greater means of preserving the family legacy. Contributors can retain control over tenant decisions to continue farming the land, and/or repurchase the farm in the future. Additionally, once the farm is contributed it becomes part of a greater portfolio of farmland assets. This exponentially increases a Contributor’s access to revenue opportunities derived from the entire portfolio – opportunities like wind, solar, wetlands, easements, mineral rights, etc. This immediate diversification reduces the stress associated with “one bad year”, natural disasters, or environmental issues that can have devastating effects on farm revenue. Assets are now insulated against indirect factors and expenses that are often outside of an individual landowner’s control.
Farms contributed into the Fund benefit from professional farm management that continually reviews all farms in the Fund. Farm managers have extensive expertise in maximizing returns, ensuring that proper lease structures are in place. Not only do Farm Managers oversee the tenant relationship, but also improvements that can be made to leases and the land in general – such as discounts, capital improvements and progressive partnerships.
What is the process to contribute a farm?
Contributing a farm into Legacy Farmland Fund is similar to a traditional sale. The team at Legacy Farmland Fund will work with contributors to collect property information and conduct initial due diligence. After the initial due diligence occurs, a purchase price is established, which leads to the determine the number of Units receive in exchange for the Contribution.
Once the proposal is approved by the Contributor, a formal agreement is executed between both parties. The team at Legacy Farmland Fund will then handle the closing process from start to finish, and the farm is admitted to Legacy Farmland Fund at the close of the current quarter.
Who should consider Legacy Farmland Fund?
The Legacy Farmland Fund is committed to preserving local producer relationships. One of the foundational constructs of the Fund provides for the ability of landowners to retain control of their asset. The Legacy Farmland Fund accomplishes this in three major ways:
- Contributors can determine whether or not the Fund can sell the contributed farm which not only confirms Legacy’s mission for long-term fund stewardship but also protects the Contributor from tax consequences.
- Contributors receive the first right of tenant designation.
- Contributors have the first right to repurchase the farm in the future.
The Legacy Farmland Fund is an ideal estate planning solution not only for non-active landowners and active farmers, but other institutions dedicated to helping producers achieve their financial goals.
A retiring farmer looking to convert to a passive investment or to position for estate planning can benefit by having the flexible unit ownership in the Fund. Additionally, farmland that is controlled by a professional trustee may benefit from Legacy by achieving diversity and third-party oversight in line with the investment mandate. Charitable professionals can utilize the Legacy fund to allow more efficient and flexible giving through Fund units, as opposed to whole real property asset gifting. Estate Planning Professionals and Farmland Advisors can benefit by providing a tool to their clients that can maximize their plans’ impact on current and future generations.
Legacy Farmland Fund understands the significance of a farmland legacy. The Fund seeks to help farmland owners preserve their legacy and maintain an attachment to the land that likely has generational significance. In addition to the preservation features mentioned above, Contributors can also benefit from special usage rights such as continued access to the land for recreational activities and continued family ties to the farm, such as maintaining the farm’s name in legal documentation. Contributors can also keep up with the status of the farm by receiving annual farm summary reports.
The Legacy Farmland Fund is an ideal estate planning tool that turns the stress of divesting the family farm into simple and sound financial planning.
Contact Sower | Legacy Farmland Fund today.
