Michigan Estate Planning: Agricultural Land and Conservation
Mar 15, 2022
Michigan Estate Planning: Agricultural Land and Conservation Strategies
Michigan families with agricultural land face unique estate planning challenges, especially when it comes to conservation and passing land to the next generation.
Michigan Agricultural Challenges
Agricultural land succession: Multi-generational farm planning is essential to keep farmland in the family and avoid forced sales or fragmentation. Without a clear succession plan, disputes or probate delays can threaten the future of the farm.
Conservation planning: Michigan offers several conservation programs, such as the Farmland and Open Space Preservation Program (PA 116), which can help protect farmland from development and provide tax benefits. However, these programs often have eligibility requirements and long-term commitments that should be carefully reviewed.
Cherry and apple industries: Michigan is a national leader in cherry and apple production. Succession planning for these specialized agricultural businesses may involve unique considerations, such as crop insurance, equipment transfer, and business entity structuring to ensure smooth operations after a generational transfer.
Water rights: Michigan’s water rights system is based on riparian rights, meaning landowners whose property borders a water source have certain usage rights. However, these rights can be limited by state regulations, environmental concerns, and competing users. Water access and use should be addressed in any estate or succession plan.
Michigan-Specific Planning Tools
Family limited partnerships (FLPs): FLPs can be used to transfer ownership interests in the farm gradually to the next generation, while allowing the senior generation to retain control. This can help minimize estate taxes and protect the land from creditors or divorce settlements. However, FLPs must be properly structured and maintained to avoid IRS scrutiny.
Conservation easements: A conservation easement is a voluntary legal agreement that permanently limits uses of the land to protect its conservation values. In Michigan, these are often coordinated with land trusts and can provide significant federal income and estate tax benefits. However, once granted, easements are generally permanent and may affect the land’s market value and future use.
Current use valuation: Michigan’s Qualified Agricultural Property Exemption and other current use valuation programs can reduce property taxes for agricultural landowners. To qualify, land must meet specific criteria and be used primarily for agricultural purposes. If the land use changes, tax recapture penalties may apply.
Agricultural Succession Planning
Family business succession: Planning for the transfer of both land and the agricultural business is critical. This may involve creating or updating wills, trusts, buy-sell agreements, and business entities. Consideration should be given to heirs who wish to continue farming versus those who do not, to avoid future disputes.
Land conservation: Working with Michigan land trusts or state agencies can help ensure that farmland remains protected for future generations. Conservation strategies can be combined with succession planning to balance family needs and conservation goals.
Estate tax minimization: Proper valuation of agricultural property, use of lifetime gifting strategies, and leveraging available state and federal tax exemptions can help reduce or eliminate estate taxes. The federal estate tax exemption is subject to change, so plans should be reviewed regularly.
Michigan’s agricultural land requires specialized estate planning for both conservation and succession. Each family’s situation is unique, and the right strategy depends on the type of land, business structure, family goals, and available programs.
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Disclaimer: This blog post provides general information for educational purposes only. It is not legal advice. Estate planning outcomes can vary based on your personal circumstances and the evidence available. Always review your options carefully before making decisions.