Preparing Your Farm or Ranch for the Next Generation
America’s farmers and ranchers are aging, and the numbers tell the story. The USDA’s 2022 Census of Agriculture reports the average producer is 58.1 years old, with nearly two-thirds at least 55. That means the coming decade will bring one of the largest land transitions in U.S. history—between 300 and 350 million acres of farmland and ranchland are expected to change hands as older producers retire.
This transition presents both risk and opportunity. Without planning, heirs may be forced into quick sales or saddled with heavy tax burdens. With the right preparation, however, landowners can pass their property in a way that protects family relationships, financial stability, and the long-term viability of the land.
1. Start conversations early and document a plan
The first step is simply talking. Too often, families avoid discussing the future because the conversations feel uncomfortable. But failing to name a successor or define expectations can leave heirs with uncertainty and conflict.
Ask: Who wants to keep operating the farm or ranch? Who would prefer ownership without day-to-day management? What income will you and your spouse need in retirement?
Write these decisions into a formal plan that covers both ownership and management. Universities and Extension services recommend reviewing the plan annually to keep pace with changes in the business and family.
2. Build strong ownership structures and agreements
The right legal and organizational framework reduces confusion and risk. Many families rely on tools like:
LLCs or family limited partnerships (FLPs): Helpful for separating liability, clarifying voting rights, and transferring shares gradually.
Buy-sell agreements: Provide a roadmap if an owner passes away, divorces, or decides to leave.
Trusts: Avoid probate and allow owners to control how and when heirs receive assets.
One practical strategy is to separate ownership of land and operations. For example, the land might be held in one entity while another manages equipment and livestock. Leasing between the two can provide stable income for retiring or off-farm heirs, while keeping the working operation viable.
3. Anticipate taxes and cash flow needs
Heirs often run into financial stress not because they want to sell, but because they have no choice. Proactive tax and liquidity planning can prevent that outcome.
Step-up in basis: At inheritance, property value resets to current fair market value, reducing future capital gains taxes if the land is sold.
Special-use valuation (IRC §2032A): For qualifying farms and ranches, this provision allows estate valuation at agricultural value rather than development value—dramatically lowering taxable estate value.
Liquidity planning: Tools like life insurance, installment notes, or reserves help cover estate taxes or sibling buyouts without selling land.
Debt alignment: Restructuring loans to match future cash flow can keep heirs from being overwhelmed.
A concise “estate snapshot” listing assets, accounts, deeds, water rights, and key contacts gives heirs a head start in navigating what comes next.
4. Document operations for the next generation
Passing down land without knowledge of how the business runs is like handing over the keys without a driver’s license. A farm or ranch operating manual should include:
Grazing rotations or cropping schedules
Carrying capacity and pasture management details
Equipment maintenance plans
Key vendor, landlord, and lender contacts
Conservation and water management strategies
Pair this with updated financial records and occasional third-party appraisals. This ensures your heirs inherit not just acres, but a working system they can manage—or sell wisely.
5. Evaluate conservation easements as part of the strategy
While not for everyone, a conservation easement can help align legacy goals with financial planning. By restricting development while keeping land in agriculture, landowners may:
Qualify for charitable deductions at the federal level (and in some states, additional credits).
Benefit from an estate tax exclusion of up to $500,000 under IRC §2031(c).
Prevent the land from being subdivided and sold off separately and diminishing its agricultural potential.
An easement can also bring land values more in line with agricultural production, easing buyouts between siblings or heirs. The key is designing terms that keep working lands truly workable.
A practical 12-month roadmap
Breaking the process into manageable steps makes planning less overwhelming. Here’s a sequence to follow:
Assemble advisors: attorney, CPA, appraiser, and—if interested in easements—a conservation planner (like Terra Alta Real Estate LLC).
Hold a family meeting: clarify goals and successors, then put them in writing.
Update entities and agreements: review LLCs, trusts, and buy-sells to ensure they fit current needs.
Run tax and liquidity scenarios: model estate outcomes under different scenarios.
Complete documentation: finalize your operating manual, financials, and property records.
Review annually: revisit the plan as your family and operation evolve.
The next 20 years will reshape who owns and manages America’s farms and ranches. With nearly two-thirds of producers nearing retirement age, now is the time to plan.
By starting conversations, structuring ownership wisely, preparing for taxes, documenting operations, and evaluating tools like conservation easements, landowners can leave their heirs with land in the strongest possible position.
Whether your goal is to keep the farm or ranch in the family or to ensure heirs have the option to sell without financial strain, estate planning provides the roadmap. Thoughtful preparation today ensures that tomorrow’s stewards inherit more than land—they inherit stability, opportunity, and a lasting legacy.
