Insights

Land Rich and Cash Light: Planning for the Farm Family

By Terry L. (T. L.) Turnipseed, J.D., LL.M., CTFA · October 29, 2026

A retiring farm family with land, depreciated equipment, stored grain and children in different roles needs a plan that protects the land, solves liquidity and keeps the siblings out of court.

Many farm families are land rich and cash light. The land has appreciated for decades, the equipment is fully depreciated, there is grain in the bin or deferred crop income on the books, and one child farms while the others moved to town. The planning has to protect the land while solving liquidity and family fairness, and it has to be done with the family's accountant, local real estate and farm counsel, appraisers and insurance professionals at the table.

The lead strategy: easement first, then the trust

For a land-rich family that wants to preserve the farm, the strongest opening sequence is a qualified conservation easement on the farmland, followed by a transfer of the easement-restricted land, or an entity holding it, to a South Dakota asset protection trust.

The easement preserves agricultural use and limits future subdivision or development, which usually matches the family's own wishes. The landowner receives a charitable income tax deduction for the value of the easement, subject to the usual charitable deduction rules, adjusted gross income limits, substantiation and appraisal requirements.¹ Easements commonly reduce the land's value by something on the order of 40 percent, although the number must be supported by a qualified before-and-after appraisal. The lower post-easement value then becomes the gift tax value when the land moves into the trust. On land worth $1,000,000 before the easement, a 40 percent easement value would produce a $400,000 charitable deduction and a gift to the trust of roughly $600,000 rather than $1,000,000.

One caution outweighs the rest. This must be a real conservation transaction, not a tax product. Syndicated easement fact patterns, promoter-driven valuations and aggressive percentages unsupported by an independent appraisal have drawn sustained enforcement attention, and Congress has limited the deduction for certain partnership easements.²

Hold the land through an entity

The trust can hold farmland directly, but in most cases the cleaner structure is a limited liability company or limited partnership that holds the land, with the trust holding nonvoting or minority interests. Separating land ownership from the operating business, the equipment, the crop inventory and the liability-producing activities protects the land, and voting and nonvoting interests let the active child run the operation while inactive children receive economic rights through the trust. Noncontrolling interests may support valuation discounts, subject to appraisal. The entity documents should also coordinate leases, crop-share arrangements, equipment use, operating lines, indemnities, insurance and buy-sell provisions.

Equalize with insurance, not with land

When one child farms and the others do not, an irrevocable life insurance trust can provide liquidity for estate taxes, debt payoff, buyouts or equalization for the nonfarming children without forcing a land sale. A survivorship policy fits when the goal is liquidity at the second death. The trust can hold the proceeds for the children rather than distributing them outright, which preserves creditor and divorce protection for the next generation.

Charitable tools for the families that already give

Farm families often give meaningfully to church, a community foundation, FFA, 4-H or land preservation. A charitable lead annuity trust can convert that stream of future giving into a current income tax deduction while shifting growth to the children after the charitable term, and it is particularly useful in a year with unusually high income from grain sales, equipment liquidation or a partial land sale. A charitable remainder unitrust fits low-basis nonfarm real estate or marketable securities the family is willing to diversify: the trust sells without immediate capital gain recognition and pays the parents an income stream for life.³ Active farm assets, stored grain and operating assets need the accountant's modeling of ordinary income and assignment-of-income issues before any transfer.

The income tax issues that have to be timed

• Deferred crop income. A cash-method farmer can defer income under a bona fide deferred payment contract, but constructive receipt pulls income into the current year if payment is available without restriction.
• Farm income averaging helps an individual farmer in a spike year, but it is not available to trusts, estates, corporations or partnerships, which matters when deciding what income should be recognized before and after trust funding.⁴
• Depreciated equipment. A sale usually produces ordinary income through depreciation recapture, so equipment should generally stay in the operating entity rather than the land trust unless the modeling supports a transfer.⁵
• A land sale to a qualified farmer after July 4, 2025 may qualify for a new election to pay the tax in four annual installments, which counsel and the accountant should review before the contract is signed.⁶

Governance, so the farm does not become a sibling dispute

A professional trustee neutralizes the conflict that arises when one child farms and another only wants income. The trust can include a farm management adviser, an investment adviser, a distribution adviser or a trust protector to separate specialized decisions from fiduciary administration, and it can define lease standards, rent review, capital improvement budgets, equipment use, insurance, appraisals, sale thresholds and buyout mechanics in advance. Documented distributions, accountings and beneficiary communications are exactly the things family-member trustees struggle to produce when the siblings stop speaking.

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