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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.