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Investing Proceeds From The Sale of a Farm or Ranch

By Christopher Nolt, Solid Rock Wealth Management 

You’ve worked hard to create the equity in your farm or ranch. When it comes time to sell, you need to work smart to preserve that equity and to make your money work as hard for you as you’ve worked for it.

I grew up working on ranches in Lewistown, Mont. As a financial advisor for over 24 years, I’ve spent much of my time working with agricultural families and their unique financial needs. In my experience, farmers and ranchers are hard working, industrious, self-reliant and frugal individuals. Most, however, are not proactive at engaging in financial planning and have little experience investing in assets outside of their farm or ranch. Consequently, many families end up paying large amounts of taxes on the sale of their property and earn inferior investment returns on the sale proceeds. While self-reliance and frugalness may have served these families well during the years of operating their ranch, failing to plan with the right team of advisors prior to a sale can end up costing them financially.

There are significant tax consequences to selling a farm or ranch that has appreciated in value. Financial tools can help defer or avoid these taxes. Money that would have gone to taxes can instead be used to generate income and provide an inheritance. To benefit from these tools, however, you must be proactive and engage in planning well before a sale takes place.  

You may be tempted to invest sale proceeds in things you are comfortable with, such as land and certificates of deposit.  Even though land has served your family well, it may not provide the cash flow returns that other commercial real estate investment strategies are designed to offer.  Likewise, while CDs are “safe” investments, they have not provided returns that have kept pace with the rate of inflation.  

The following is a hypothetical example of what a family may be able to achieve when selling their farm/ranch.

Bob and Mary, ages 67 and 65, owned a ranch in central Montana. Their two children were grown, had their own careers and weren’t interested in taking over the ranch. Bob and Mary deeply loved their ranch but had an increasing desire to travel and spend more time with their kids and grandkids.  Bob’s back pain was interfering more each year with his ability to operate the ranch, and calving season was beginning to take a heavy toll on his health.  

After much emotional deliberation, they decided it was time to sell. 

Throughout the years of operating their ranch, any profit from their operation went back into purchasing more land, cattle and equipment.  When Bob and Mary listed their ranch for sale, the value of their home and ranch assets represented nearly 100 percent of their net worth. The value of their land had greatly increased and based on a tax projection from their CPA, Bob and Mary faced a tax bill of over $600,000 if they were to cash out.

After several meetings with the a wealth management consultant specializing in working with agricultural families, their CPA and their attorney, Bob and Mary decided to utilize a 1031 Exchange and a Charitable Remainder Trust (CRT) to reduce the tax burden on the sale and to provide them with a tax-efficient income and retirement plan.

The ranch sold for $5.2 million. Bob and Mary did a 1031 exchange for $2 million into an office building leased to the Social Security Administration.  This building offered a 10-year lease guaranteed by the federal government and generated a first year income, after all expenses, of $150,000.  

Additionally, $1.5 million worth of land, cattle and equipment was sold through a CRT. With the help of the wealth management consultant, this $1.5 million was invested in a diversified portfolio of mutual funds within the trust for the benefit of Bob and Mary. They chose a seven percent payout rate with the CRT, which provided them a first year income of $105,000.  

Bob and Mary paid tax on the remaining sale proceeds.  This tax was largely offset by the charitable income deduction they received from making the gift to the Charitable Remainder Trust.  They were also able to withdraw $300,000 tax-free from the sale of their home through the Personal Residence Exclusion.  By using the 1031 Exchange, Charitable Remainder Trust, Personal Residence Exclusion and other tax saving strategies, Bob and Mary reduced their tax bill from over $600,000 to less than $100,000.  

The net cash available after paying tax and investing in the Social Security building and CRT was $1.4 million. They used $490,000 of this cash to purchase a new home on a small acreage in central Montana and a second home in Arizona. They also used $20,000 to take a long-awaited trip to Disneyland, and they deposited $50,000 into a money market account. The balance of the funds was invested in a diversified mutual fund portfolio comprised of 40 percent stock and real estate funds and 60 percent bond funds. From this portfolio, they made annual distributions of seven percent, providing a first year income of $77,000.

From their annual income, Bob and Mary made annual gifts to a college savings plan for their grandchildren. They established a small college scholarship fund for their local high school graduates. They purchased a $1 million second-to-die life insurance policy on their lives to replace the money gifted to their CRT. Their attorney and life insurance agent helped them set up an irrevocable life insurance trust so their kids could receive the proceeds from the life insurance both income and estate tax free.  

Besides enjoying a comfortable retirement and providing a large inheritance for their children, Bob and Mary had the joy of knowing that when they both passed on, the CRT they established would provide a large amount of money to support their church and their favorite charity.

Their annual income is $150,000 from real estate, $105,000 from the CRT payout and $77,000 from the mutual fund portfolio, for a total of $332,000 annually. 

This is just one example of options that a ranching family has to invest the proceeds from the sale of a farm or ranch. There are more options available to productively manage wealth after selling a farm or ranch beyond just paying taxes. Contact your wealth management advisor to discuss the best option for your operation.

Chris Nolt is the owner of Solid Rock Wealth Management and Solid Rock Realty Advisors, LLC, sister companies dedicated to working with families selling a farm or ranch and transitioning into retirement.  For more information, call 406-582-1264 or visit solidrockwealth.com and solidrockproperty.com.

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Keeping Track of Wyoming’s Water and Climate at the Water Resources Data System

By Chris Nicholson, Water Resources Data System Director

Do you need water and climate data? Want to know how dry or wet it has been? Hot or cold?  Windy? We can help!  The Water Resources Data System (WRDS) is a clearinghouse and repository of hydrological and climatological data for the state of Wyoming. 

WRDS is funded by the Wyoming Water Development Office (WWDO) and housed within the Department of Civil and Architectural Engineering at the University of Wyoming. Through the years, WRDS has developed into the most comprehensive single source of accurate surface and groundwater quantity and quality, snowpack and other climatological data available for Wyoming, fulfilling more than 300 data requests and seeing more than 200,000 website visitors annually.  

For over 40 years, WRDS has provided information to numerous federal, state, county and municipal agencies, private engineering firms, public schools, libraries, private citizens and other universities.

Online climate and water data

WRDS hosts several websites with data products and links related to Wyoming climate, hydrography, water quality and drought information at wrds.uwyo.edu.  

This website features precipitation data from CoCoRaHS, the Community Collaborative Rain, Hail and Snow Network, as well as new climate monitoring maps, graphs and downloadable data compiled by the State Climate Office, which can be reached at wrds.uwyo.edu/sco/climate_office.html.   

This information will help water planners and stakeholders gain a sense of climatic variation over time and across the state. 

WRDS is also updating related GIS Web Mapping Tools that let users search and view maps and data related to groundwater wells, stream flow, precipitation, public water system data and information on the state’s irrigated lands.

Wyoming Water Library

The Wyoming Water Library housed at WRDS is a comprehensive collection of almost 21,000 documents related to Wyoming’s water resources. Our library is an exceptional resource for individuals desiring more in-depth information on the State’s water resources. 

Materials in the collection range from Wyoming Water Development Commission (WWDC) Level I and II reports to State Engineer’s Office documents, U.S. Geological Survey Reports and University of Wyoming theses.

WRDS actively works to support the WWDO by assisting staff in the development of the State Water Plan, hosting and maintaining the Commissions numerous webpages, for example, the WWDC, State Water Plan, WRDS, Water Library and State Climate Office sites, and serves as the primary library and repository for WWDC reports and related data.

CoCoRaHS

Because Wyoming is the fifth driest state in the U.S. and because precipitation varies so much from place to place over short distances, WRDS is actively working to get better precipitation data in conjunction with the Community Collaborative Rain, Hail and Snow Network (CoCoRaHS) project. 

CoCoRaHS, found at cocorahs.org, is a unique, non-profit, community-based network of volunteers working together to measure and map precipitation in all its forms.  It uses low-cost measurement tools, stresses training and education and uses an interactive website with the goal of providing the highest quality precipitation data for natural resource, education and research applications. 

WRDS provides a free rain gauge to any volunteer who joins Wyoming CoCoRaHS and reports precipitation, or the lack of it. Contact us if you are interested. We would welcome your help!

Snowpack

Water in the form of high-elevation snowpack is a critical resource for all segments of Wyoming’s population and no one more than ranchers and irrigators who rely on late-season snowmelt for much of their water supply.  

Because of the importance of snow to our water supply, WRDS has partnered with the Natural Resource Conservation Service (NRCS) to provide maps and data of how much snow our mountain ranges are receiving. This information is available at wrds.uwyo.edu/wrds/nrcs/nrcs.html.  

NRCS’s constellation of snow telemetry sites (SnoTel) provide daily data on the water content of snow, also known as the snow water equivalent (SWE).  WRDS uses this information to generate daily maps of SWE for 19 river basins to keep the public informed on the progress of our snowpack reservoirs.

Water year 2014 began October 2013 with drought conditions covering 74 percent of the state, but Wyoming was drought-free by the end of March.  As water year 2015 begins, we anxiously await the onset the winter snows and hope for a productive snow season! 

If you are interested in finding out more about water and climate in Wyoming and need data or information, please feel free to contact WRDS at This email address is being protected from spambots. You need JavaScript enabled to view it. or 307-766-6651.

 

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High steaks

“You get what you pay for” is a saying that often assumes limitations. It comes to mind when you or a friend find disappointment in a supposed bargain. 

Add an intensifying phrase, and it points out that quality costs more, too. You really do get what you pay for.

For many years, good value meant low price and acceptable quality. But some time in the last 10 years, consumer studies began to show quality trumps price when shopping for beef. The higher beef prices trended, the more important quality became.

In the long run, price and value are the same, but in the short run, almost never. As Warren Buffet put it, “Price is what you pay. Value is what you get.”

It takes time and experience to sort out the difference between a real bargain and regret. 

Prices for cattle and beef are up. What about the value?

You probably sold cattle for the most, per-pound or per-head, ever in your life in the last year. Were they worth it to the buyer?

Just because somebody pays the price doesn’t mean they’re satisfied. The beef and cattle businesses have become “high steaks” games.

Let’s say you’re selling bulls. With average prices often $1,000 higher than last year, your reputation has never been under greater scrutiny. Many bull auctions had a spread of more than $10,000 top to bottom this year, but of course nobody can use a line like, “Well, what do you expect for only $4,000?”

Over the next few years, let’s say the bulls perform as expected. Their calves make money in the feedlot and hit the quality beef target even as their daughters improve the herd. In that case, the top-end purchasers will say, “You really do get what you pay for.” 

Let’s say you’re selling calves. Maybe you topped the auction at three dollars per pound or partnered with a feedlot at such a price. Maybe you “got rid of them” for $2.20 per pound. In any case, the pressure is on your reputation. Will the limitations come to mind or satisfaction at finding intrinsic value?

Let’s say you’re selling beef. Auction is not an option, and a retailer has only days to sell fresh product. It has to look great, and it helps if it’s backed by a quality grade or brand that reassures the buyer this will be worth the price. Ordered from a restaurant menu, the experience has to make us realize we really do get what we pay for.

Commodity markets are supposed to deal in perfectly interchangeable units. Many people consider cattle and beef as commodities – unless they have personal experience. Too much is at stake today for any producer to think and act as if all are the same. 

They’re not like real estate with each being absolutely unique, but the differences between individuals, cuts, brands and quality grades are increasingly important to buyers at these record prices. 

On average, cattle and beef are good values.

We know “value” has another meaning. There are some things you won’t do for a higher price because of your values. The right thing to do is sometimes not the most profitable. But when it is, a bright light shines on the realization.

High-quality beef commands a higher price. It is produced by attention to detail in selection and management, and making sure cattle never have a bad day. Demand studies show an increasing supply of lower quality beef is twice as likely to reduce the price as increasing the supply of premium Choice and Prime beef.

The road most in line with the high road of values is the same road to a more profitable future for your cowherd enterprise and your family.

Next time in Black Ink® Miranda Reiman will look at all the people it takes to make the beef supply chain work. Questions? Call 330-465-0820 or e-mail This email address is being protected from spambots. You need JavaScript enabled to view it..

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Al’s Cultural Landscape

Several weeks ago, news of Al Wiederspahn’s death caused a whiplash, which cracked quickly around the Cowboy State. His loss is felt keenly by many of us beyond his family and friends because of the many contributions he made to his community.  While a very private man, Al was generous with his time and considerable intellect, and those of us fortunate to benefit from his wisdom also gained precious insights into his beliefs, opinions and hopes for the future.  

A conversation with Al was always a journey – a meandering trip that touched on all manner of related subjects before ending up at the required destination.  He was a model for civility – always polite, always proper and always impeccably dressed.  While one of the most patient people imaginable, he was not always patient.  Al could not stand hypocrisy, stupidity or dishonesty, and he was not shy about expressing his opinions of the unworthy. Very politely.  Properly.  And while handsomely attired.  

Al served on the Board of Directors of the Wyoming Stock Growers Land Trust since 2009 and was Chairman for several of those years.  He was passionate about our work and the opportunity we have to conserve not just land, but Wyoming’s “cultural landscape.”  He gave a great deal of time and energy to our Land Trust and was a greatly valued mentor, leader, conscience, philanthropist, counsel  and, perhaps most importantly, expansive thinker.  

What follows is something Al wrote for the Land Trust’s newsletter in 2010.  Not only does it describe our work at its very best, it also reminds us of what we will miss most about Al.

“The Ranching Culture”

By Alvin Wiederspahn

It is a privilege for me to serve on the Board of the Wyoming Stock Growers Agricultural Land Trust (WSGALT).  While much of WSGALT’s work focuses on the conservation of ranch lands, it is perhaps less recognized that by preserving agricultural uses on those lands, WSGALT also furthers the protection of a culture – the culture of ranching.

Culture has been described as the total way of life that characterizes a group of people.  By any measure or definition, ranching embodies a singular culture.  The ranch culture is comprised of a distinctive set of cultural components, which include animal husbandry, architecture, courtship, cuisine, dance, dress, etiquette, free enterprise, gestures, individual freedom, language, music, values and work ethic. It is primarily through the agency of their culture that people interact with and modify their environment. Ranch culture affects certain attributes of the land, reflecting the way of life of the people who live and work on it. The ranch culture’s relationships with the physical environment create a unique “cultural ecology.”

The stewardship exercised through these relationships has preserved sustainable environments that are largely unchanged by human behavior. Many of Wyoming’s prodigious landscapes are inextricably tied to production agriculture. Our state’s defining physical features – climates, landforms and natural vegetation – are particularly well suited to stock-raising.  Ranching’s human activity, with all its attributes and works, has preserved open space, protected habitat for wildlife and provided food and fiber for a nation.  The ranch culture is in alignment with resource conservation because ranchers’ lives and livelihoods depend on the good stewardship of those places entrusted to their care. That is why one of WSGALT’s premiere objectives is to facilitate ranch families’ personal decisions concerning their private property, allowing the creation of conditions that will protect ranches for future generations and preserve both a landscape and a way of life.  Through the creation of a properly crafted conservation easement, WSGALT provides a means to preserve the “cultural landscape” of ranching.

Cultural landscapes have been defined as “geographical terrains which exhibit characteristics, or which represent the values, of a society as a result of human interaction with the environment” or as lands which “represent the combined works of nature and man…” or, more philosophically, as “a set of ideas and practices embedded in a place [which] captures the relationship of [its] tangible and intangible qualities.” The value of such cultural landscapes is coming to be increasingly recognized and appreciated.

A noted geographer, Pierce Lewis, has stated, “The attempt to derive meaning from landscapes possesses overwhelming virtue.  It keeps us constantly alert to the world around us, demanding that we pay attention not just to some of the things around us but to all of them – the whole visible world in all of its rich, glorious, messy, confusing, ugly and beautiful complexity.”  Ranchers have always been attuned to this complexity and to the productive, cultural, aesthetic and, yes, theological meaning derived from the landscape.

By protecting ranchlands and ranch life, the Wyoming Stock Growers Agricultural Land Trust works to preserve ranch culture, ranch landscapes and this important cultural ecology of Wyoming – and well it should.  After all, “culture” is our middle name.

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