Protecting the land from development is a critical piece of succession planning. Land trusts and conservation easements are a popular model. Less well known is the option to turn a farm or ranch into a nonprofit corporation.
There are two non-profit models that can apply to farms: the 501(c)(3) and the 501 (c)(5). In addition to the benefit of no federal, state, or local taxes, nonprofit entities can solicit donations and apply for federal grant programs. The (3) model is one in which donated money is tax deductible. The (5) model is for labor and agricultural organizations. Either can be chosen based on the goals of the nonprofit and how it will be structured.
Nonprofits have to have a benefit for the community. The farm can provide education, such as a farm-training programs for veterans or a farm-school program for elementary aged kids. They can provide a therapy, such as equine therapy. They can become an animal rescue. A model that was popular in Europe for many years was a farm allotment or community garden model– allowing community members access to small patches of land to grow food. Different communities have different needs.
Nonprofit corporations also will be incorporated, with a board of directors. That means there will be many more voices involved in direction, planning, and decision making, but also more resources. Incorporating as a nonprofit doesn’t mean you lose control over the land or the running of the farm, though. It’s just a new, more participatory model. New stakeholders can bring both experience and resources, and the next generation of farmers may be more familiar with these models and comfortable with new farm business structures. Some of these new stakeholders are funders, staff and board directors, clients, and volunteers.
The local college or university has resources to help with initial business models and planning. Turning a farm into a nonprofit might make a good senior project for a finance or agriculture major.
For more information on succession planning, please contact us.
