Free Wealth Management Guide Investing Proceeds From the Sale of Farm or Ranch

Investing Proceeds from the Sale
of a Farm or Ranch
By: Christopher Nolt, LUTCF Registered Principal, Investment Advisor Representative

An Educational Resource From
Solid Rock Wealth Management

Introduction

Ranch Sale: A Hypothetical Example

I grew up working on ranches in Lewistown, Montana.
As a financial advisor for over 23 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, frugal and selfreliant individuals. Most, however, are not proactive at
engaging in financial planning and have little experience
investing in assets outside of their farm or 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.

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 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.
You and your family have worked hard to create your
wealth. Now it’s time to work smart to help preserve that
wealth and make it work hard for you.

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% 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.
Bob and Mary’s CPA referred them to an advisor who
owned an independent wealth management firm that
specialized in working with agricultural families selling their ranch. After several meetings with the wealth
management consultant, 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. $1.5 million worth of land, cattle and equipment was sold through the CRT. Because the CRT is a
tax-exempt entity, the proceeds sold in the CRT were not

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