Farmers for Heifer is a program helping farmers to create retirement income for themselves while helping to end world hunger and poverty through promoting sustainable agriculture.
We believe that every situation is unique, and there is no one size fits all solution for developing a retirement plan for all farmers. We work with farmers who are different ages and come from various parts of the United States. Some farmers have only land and their crops, while others have tractors, buildings and equipment. Some are looking for a way to minimize their tax burden, so they can maximize the amount of their trust to increase their annual retirement income. Others just want a way to leave a gift for the charities of their choice while continuing to use the money for their benefit during their lifetime. We are here to help you do all of these things.
While everyone’s situation is different, the general process is similar for all farmers. The general steps are outlined below:
First, we get to know you, your family and your goals for retirement. We will work with you and your financial advisors to create a charitable remainder unitrust (CRUT) that is developed with your unique situation in mind. This trust becomes the container for the assets that will provide your lifetime income. It is a legal document that specifies how much we will pay you for your and your spouse’s lifetime. When the CRUT is created, you transfer ownership of the property used to create the trust to Heifer Foundation. This transfer may have significant tax benefits for you that impacts the amount that is invested on your behalf and the amount of income you receive for the rest of your life.
Donating Your Property can Minimize Capital Gains Tax
If you sell the property yourself and invest the proceeds in your own retirement account, you are responsible for paying taxes on the “capital gains” from the sale of your property. This tax will reduce the amount that you are able to invest and live off of (it could be as much as 40%). If you have owned the property for many years, it is likely that your “basis” — that is, how much you paid to acquire the property — is very low. The difference between your basis and the sale price is called a capital gain.
Here is an example: Suppose you inherited from your parents the land that you have been farming for the last 40 years. You have no basis in that land. In other words, you didn’t pay anything to acquire it. If the land sells for $1 million, the entire amount is a capital gain. If you’re subject to a 40% tax rate, that would be a $400,000 tax, which means instead of living off an investment of $1 million, you only have $600,000 from which to draw income. At the minimum distribution (what we pay you) of 5%, that’s $20,000 less income for you every year for the rest of your life.
That’s the benefit of the CRUT. By planning your charitable gift during your lifetime, you are able to continue to earn income from what you’ve worked all your life to build.
Here is an analogy that we have found helpful to illustrate the CRUT. Think of the proceeds from the sale of your farm as a sheep. The CRUT is the pen where your sheep will be placed after the farm property is sold. We will return to the sheep analogy throughout this process.
Once the details of your CRUT are finalized, Heifer Foundation will work with professionals in your area to organize the sale of your farm property. In the past we have organized the sale of land, equipment, animals, and even harvested crops. Heifer Foundation receives all of the proceeds from the sale. At this point, Heifer Foundation becomes the steward of the proceeds from your sale.
Upon completion of the sale, all of the proceeds are invested in your CRUT. These funds are invested in marketable securities with the intention of growing the principal balance of the trust. If the principal grows, your annual income will also grow, as your distributions are flexible, based on the balance of the trust. Likewise, if the balance of the trust contracts due to market conditions, your distribution will also change.
If we return to the analogy of the sheep, this is when we put your sheep in a pen. We don’t just leave your sheep there. Our shepherds actively care for the sheep to help them grow and produce plenty of wool (market growth).
As your sheep grows wool, we periodically shear the sheep, and we give the sheared wool to you.
When we create your CRUT, we will work with you to determine how frequently you receive payments. Depending on your overall financial situation and goals, you can elect to receive monthly, quarterly, semi-annual or annual payments. These payments can range from 5% to 9% of the year-end balance of the trust. As the balance increases, your distributions will increase (and decrease if the balance falls).
Upon your and your spouse’s death, the remaining balance of your CRUT (remainder) becomes a contribution to Heifer Foundation. This money is added to the Heifer Foundation general endowment which will provide ongoing support for teaching sustainable agricultural practices to people around the world. Your gift becomes part of the solution to hunger and poverty while teaching people to care for the earth.
At this point, the sheep is given to Heifer Foundation, and the wool each year is given to Heifer to be used in carrying out its mission of ending hunger and poverty and caring for the Earth.