CGNA: Chapter 5 - Agricultural Assets, Quick Take-aways

CGNA: Chapter 5 - Agricultural Assets, Quick Take-aways

Article posted in General on 4 April 2018| comments

This article is an excerpt from Charitable Gifts of Noncash Assets, a comprehensive guide to illiquid giving by Bryan Clontz, ed. Ryan Raffin. Published by the American College of Financial Services for the Chartered Advisor in Philanthropy Program (CAP), with generous funding from Leon L. Levy. For a free digital copy, click here, and to order a bound copy from Amazon, click here.

Below are quick take-aways on gifts of agricultural assets. Agricultural asset topics are based on Phil Purcell’s “Gifts of Agricultural Assets.” For quick take-aways on gifts of real estate, see Agricultural Assets Quick Take-Aways. For a review based on that article, see Agricultural Assets Intermediate. For an in-depth examination adapted and excerpted from the article, see Agricultural Assets Advanced. For further details, see Agricultural Assets Additional Resources.

Agricultural assets go beyond crops alone—they can include livestock, equipment, and any attached land. This asset class is often highly regulated, and contributions can be very complex as a result. This section discusses the advantages, disadvantages, factors to consider, and questions to ask when considering a gift of agricultural assets.

Advantages of donations of agricultural assets include:

  • Versatile asset class that allows flexible giving—donors can contribute crops, livestock, and equipment with or without accompanying land.
  • There is often an active market for the donated assets (farmers regularly sell commodities like crops and livestock, and regularly purchase farming equipment).
  • Many deferred giving options, including life-income generating planned giving vehicles and retained life estates.
  • Bargain sales and conservation easements are also possible avenues for giving.

Disadvantages of donating agricultural assets include:

  • The charity’s subsequent sale of assets may lead to unrelated business taxable income.
  • Donors will generally only enjoy a full fair market value tax deduction if the charity puts the assets to a related use.
  • Maintaining the assets while finding a buyer may be burdensome and expensive (for example, feeding livestock).

Wrinkles in the process to consider include:

  • Due diligence is important for this asset class, including site inspection, environmental review, and marketing analysis.
  • The charity will need a way to store, administer, insure, or otherwise manage the assets after the gift transaction is complete.
  • The donor’s use of the property can impact the tax deduction available (inventory versus property used in the business) in addition to the charity’s intended use.

Discovery Questions

Donor Questions
  1. What is the donor trying to accomplish with the gift?
  2. What is the asset’s value and how was that determined (e.g., appraisal or recent transactions)?
  3. Legally, who or what owns the asset?
Advisor Questions
  1. What is the current tax basis in the asset and is it ordinary income or long term gain?
  2. What is the likely exit plan for the charity (e.g., auction, private sale, com- modities broker)?
  3. Does the advisor have an estimate of what a qualified appraisal will cost?
  4. Is the asset business or farm inventory?
Charity Questions
  1. Is the effort worth the expected benefits (i.e., is the juice worth the squeeze)?
  2. Has the screening and due diligence process identified any potential prob- lems and can the risks be mitigated?
  3. Is there the necessary expertise to accept gifts of agricultural assets in a timely way?
  4. Should indirect gift acceptance be considered, like using external third party foundations or supporting organizations to receive the asset?
  5. Is there a clear liquidation plan to maximize the sales proceeds as soon as possible?
  6. Can the charity use the assets as part of its charitable mission?
  7. How will the charity manage or administer the assets while sale is pending?

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