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Home > UnCommon Farms Blog > 721 Exchange: Why all farmers and landowners should know about it

721 Exchange: Why all farmers and landowners should know about it

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Have a client that wants to retire but is unsure of how to gain the most value from their land? They are not alone. In the US alone, around $30B in farmland assets will transfer to the next generation every year. With farmers and farmland owners creeping closer to retirement age, the stage is set for big changes in farm country, and without a formal succession plan in place, many landowners are looking for ways to structure their assets to 1) minimize conflict 2) maximize value 3) retain liquidity and 4) save on tax.

Farmland owners might be more familiar with a 1031 exchange where proceeds from a property sale are held by a title company and used to buy another property within 180 days. Since it’s a like-kind exchange, no capital gains taxes are incurred, however this places some constraints on timing and liquidity.

 

Enter the 721 exchange

The 721 exchange offers a simple and flexible solution for you to offer for succession, divesting and estate planning purposes. Farm real estate assets are contributed and deeded into an operating partnership, Legacy Farmland Fund, in exchange for shares or fund units of the partnership. The contributor then has the flexibility to retain the shares and receive quarterly dividends and appreciation, divide them amongst heirs, incorporate them into a multitude of estate planning and gifting options, or sell them for cash after a certain holding period. It’s a simple yet powerful solution for farmland owners and their families, enabling them to fully benefit from their farmland asset.

 

721 exchange benefits

  • Tax-Deferred Benefits: Landowners can maximize the value of their farmland while deferring capital gains taxes.
  • Participation in Returns: Landowners have the opportunity to share in the returns generated by pooled farmland assets within the Legacy Farmland Fund.
  • Flexible Estate Planning: Fund Units accommodate increased flexibility for simple and more complex estate planning which includes philanthropic gifting
  • Asset Control: Commitment to preserving local producer relationships by restrictions on the sale of the asset, as well as optional lease back and repurchase rights

 

Summary

In summary, the 721 exchange is a viable alternative for landowners to consider given its tax deferred benefits and flexibility. As a farmer it allows you the ability to retain preferential access to farm the land as well as an option to lease back and repurchase rights. It is one of the many tools in the box to consider while engaging with your landowners today.

 

How do I learn more?

Contact the Oaken team for more on the 721 exchange and how we deliver this to you through our partnerships. Uncommon Farms will also be organizing a webinar to share more information on the 721 exchange and dates will be communicated shortly.

 

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