Legal Memorandum: Tax Rules for Gifting Farm Assets to CRT

Issue: What are the tax rules for gifting farm assets to charitable remainder trusts?

Area of Law: Estate Planning & Probate, Tax Law
Keywords: Charitable remainder trust (CRT); Tax rules for gifting farm assets
Jurisdiction: Federal
Cited Cases: None
Cited Statutes: IRC § 664; IRC § 2055(e)(3)
Date: 11/01/2008

A charitable remainder trust (CRT) allows the grantor(s) of the trust to realize the tax-free sale of assets, with the income paid to a non-charitable beneficiary, such as the donor or family members, during their lifetimes and the trust corpus paid to a designated charity upon the termination of the trust.  There may be more than one non-charitable beneficiary, either concurrently or successively, and the income interest may be a life estate or for a term of years, not to exceed 20 years.

Retired farmers face many tax issues.  The USDA has stated that family farmers face the same concerns all potential retirees face and then some.  Many working farmers tend to be older than their counterparts in the non-agricultural workforce.  While some farmers regularly report losses from farming activities and pay little in federal tax, there is a downside to regular loss reports.  Absent positive income, liability for Social Security taxes may have been avoided, thus decreasing the amount ultimately collected.  In many cases, agricultural families’ participation in the Social Security program is through contributions they paid through off-farm employment. 

Statistics tend to show that fewer agricultural families participate in 401k and IRA programs than non-agricultural families.  While farmers typically have more net wealth than others, most of that wealth is tied up in agricultural assets.  The fear of tax consequences from the sale of land encourages many farmers to hold their property well past the average retirement age.  Numerous tax vehicles now recognize this […]

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