A versatile charitable remainder trust cultivates ‘agri-tirement” for small farmers

After a lifetime of farming in Arkansas, Charles and Mary Belk were ready to retire and reap the benefits of their hard work. But like other owners of small farming operations, they faced hard decisions about how to finance their golden years.

Their wealth was in their rice farm — land, buildings, equipment, animals, remaining crops, etc. To fund their “agri-tirement,” those assets needed to be sold.

Farmers “live poor and die rich,” says Charles Belk. “Like most farmers, I had no pension. What you’ve got is what you’ve accumulated during your life.”

He explains the conundrum they faced. By selling the farm themselves, they’d lose 40 percent of the fruits of their labor to the government for taxes — an unacceptable option. But, still, the farm was their only means of creating a retirement fund. They needed an alternative, some type of financial mechanism that would allow them to liquidate their assets, sidestep the tax issue and guarantee them lifetime financial support.

“We didn’t think there was any way we could avoid paying taxes,” Belk said. But they began researching a variety of options. Then he and Mary learned about Heifer Foundation’s charitable remainder unitrust (CRUT) and discovered the ideal solution for their dilemma.

A versatile option

A CRUT is unique in that it’s not an outright charitable transfer, but instead gives donors the rights to income from the trust for their lifetime. After they die, the trust passes to Heifer and any other charitable beneficiaries the donors have named.

When a person decides to set up a CRUT, Heifer Foundation works with them, their financial consultants and their family to create a trust to suit their unique circumstances, says Ardyth Neill, the foundation’s Vice President of Asset Management, CFO and Interim CEO.

“There are many ways to structure this given the individual’s needs,” Neill said. “It’s very versatile. I’d say we have no two that are exactly alike, although there are some that are similar.”

The Belks set up the trust, signing over their assets to Heifer Foundation, which then handled selling them. This allowed the couple to avoid paying capital gains taxes while giving them a significant upfront tax deduction for the year the trust was established. Additionally, the assets used to fund the trust were exempt from any estate tax liability, Neill says.

The Belks enjoyed a dual benefit in establishing their trust with Heifer. First, it resolved the tax issue and provided them with income for the rest of their lives. A CRUT requires that a specific percentage of the annual value of the trust be paid to the income beneficiary.

“We do get a quarterly benefit and that’s enough for us to live on,” Mary Belk said. Because of the financial security of their trust, the couple has lived comfortably and happily in Jonesboro since they retired 11 years ago.

The second benefit, the Belks say, was that the trust they set up with Heifer Foundation allows them to share their blessings by leaving a sustained legacy for struggling farmers in other parts of the world.

Small farmers helping other small farmers — what could be more ideal?

“We’re so blessed with good soil and plenty of water. Other people aren’t as blessed as we are,” Charles said. “It’s good we can help other people who don’t have the advantages we have. It’s a win-win situation for everyone but the IRS.”

An intertwined mission

Since its founding in 1991, Heifer Foundation has offered people like the Belks planned giving opportunities that serve their specific needs while helping others less fortunate. In addition to charitable remainder unitrusts, options include bequests in wills, named endowments and charitable gift annuities that offer fixed lifetime income.

“There’s something for everyone,” Neill said, noting that planned giving offers donors “a good way to pass on their values.”

When the board of Heifer International created the foundation, its purpose was to provide sustainable financial backing for Heifer International’s mission “to work with communities to end hunger and poverty, and to care for the Earth” by growing and overseeing an endowment to fund its programs.

The two organizations are separate nonprofit charitable entities, but linked by the desire to end the cycle of poverty and hunger affecting 925 million people in 2010, according to the World Hunger Education Service.

Heifer International grew from Indiana farmer Dan West’s belief that giving people the means to feed themselves had long-term benefits for the poor. In 1944, he created Heifers for Relief, a program dedicated to ending hunger by providing families with livestock and training, so they could feed their families, as well as share their knowledge and the animals with others in need. Giving people a source of food, not just food itself, was the guiding principle.

Heifers for Relief began by shipping 17 heifers to Puerto Rico, firmly laying the cornerstone for Heifer International’s dedication to “passing on the gift.” Heifer’s livestock gifts now include pigs, goats, chickens, water buffalos and other animals. Here’s how it works. Heifer makes a gift of farm animals such as goats to families in communities and villages around the world who could benefit from these “living gifts.” Milk from the goat supplements the family’s food supply plus gives them a product to sell or share with others. When their goat has its first female offspring, they are required to “pass on the gift” to another needy family who also will pass on its first female offspring. With the other offspring from their goats, it’s the beginning of a herd they can sell or keep to provide a sustainable means of existence for themselves.

A group of farmers in Jabana, Rwanda, recently held a “Passing on the Gift” ceremony to mark the passing of a dairy cow from 22 Heifer donors to 22 recipients. Their donations represented the sixth generation of giving for Heifer International’s cow project there.

Small farmers in Africa, South America, Asia/South Pacific and Central Eastern Europe benefit from the concern of their farming counterparts in the United States who, like the Belks, pass along the gifts of their lifetime through charitable remainder trusts.

Continuing a chain of giving

Charitable remainder trusts dovetail perfectly with Heifer International’s mission. The continuous support provided by such trusts ensures generations of improvement in the lives of people like Aus and Yuri Lahuna of Thailand. In 2009, the Lahunas received five pigs and a water buffalo, seeds for a vegetable garden and the supplies to build a fish pond from Heifer International. Since then, their pigs have given them 12 offspring, and they had a surplus from their vegetable garden to sell to nearby villages.

In 2010, a Harris Interactive brand equity study showed that Heifer International is rated one of the top 10 most trusted nonprofits in America and one people said they would choose to donate to. Indeed, Heifer International’s success is inextricably tied to the generosity of donors, the majority of whom share their good fortune by making onetime donations or several singular donations over a number of years.

But Heifer Foundation’s planned giving options allow donors who want to further Heifer International’s mission to provide financial support in perpetuity. Through a CRUT, for example, small farmers lengthen and continue the chain of giving — not just during their lifetimes but long after they’re gone.

“We’re helping individuals with sustainable agriculture. With the trust, a farmer’s funds go into an endowment, so the gift continues after their lifetime,” Neill said. “It’s ongoing. Those funds will be invested and used for Heifer International to continue its work around the world. It’s a way to ensure that you keep on giving. You can really have an impact for a very long time.”

The Gift Of Farm Animals Fulfilled

Billy Nzobo and his wife, Nestry, are an impressive example of how a family can benefit by having animals given to them by Heifer. They live in Tigwirizane, part of the Luanshya District in Zambia. In 2004, they received two cows and now have 16 cows. Billy sold one cow and bought roofing sheets for his house and then sold another cow and bought an engine and a pump to get drinking water and for gardening.

He wanted to expand his farm and vegetable capacity, so he bought bull calves for plowing. The family crops include corn, onions, tomatoes, Irish potatoes, other garden vegetables and grass for cattle fodder. His milking cows zero-graze according to the Heifer International training model.

The money earned during the last few years has enabled him to send all of his children to school, purchase bicycles, household goods like dishes, a TV set and chairs to sit in. His cows produce 20 liters of milk per day.

“We didn’t have anything here before Heifer animals,” Billy Nzobo said. “My animals don’t get sick. God has blessed me. I follow the instructions given in training. This is where God has come in.”

Asked what advice he had for other beneficiaries about to receive Heifer animals, Billy said, “I’d tell them the animals bring a lot of good things. If you have problems, just having an animal lessens the burdens in life.”

Nestry knows firsthand how having the cows has improved life for her family. “We see a lot of difference in terms of nutrition. We are now able to raise more crops because of the cattle. Children drink milk now. We used to have two meals a day at best, now we have three.”

Will The Cow Circle Be Unbroken

One cow.

That’s all Charles and Joe Belk’s father had when he decided to start his farm on an undeveloped piece of land in rural Arkansas.

“When he bought the land, there wasn’t even a road to get to his place,” Charles Belk said when describing his father’s determination. “He cleared the land with a team of mules and a hired man. Some of the farmers around here told him that he had just bought a frog pond that wouldn’t even grow frogs, much less anything else.”

But that didn’t deter their father. He cleared the marshy land and built a home, including hand splitting the cedar shingles made from trees felled on his property.

From just one cow, Belk Farms eventually grew into a thriving dairy farm. For many years, Belk Farms remained in the dairy business. In the early 1970s, a worldwide shortage of rice prompted the government to change its rice grower’s policy. Under the new policy, farmers who hadn’t previously been farming rice before the government freeze were allowed to get into the domestic rice farming business. The Belks saw this as a welcome opportunity to get out of the seven-day a week, 365 days a year business of dairy farming and get into a more seasonal and profitable business that best suited their marshy land.

The Belk’s had a friend, a rice farmer nearby, who helped them in their transition into rice farming. The helping hands they received and the breaks they’d been given are values the Belk’s would always remember.

When Joe and his wife faced difficult health issues, Charles didn’t feel he could replace his brother in the business with a hired helper.

Charles and wife Mary had no children with whom to leave their part of the farm. Joe and his wife Judith’s four children had professional careers and no interest in farming. Charles and Joe decided it was time to sell the farm.

The Belk’s father was an avid supporter of Heifer International (HI) for many years and passed on to his children his desire to help the hungry by providing them a means to support themselves. When the brothers first decided to liquidate the farm, Charles made his first call to HI to ask how he might donate the farm equipment to the HI Ranch. After evaluating the Belk’s equipment, it was determined that the ranch might only be able to use a portion of what they wanted to donate. It was then that they spoke with Heifer International Foundation (HIF) about their current situation and their future needs. HIF was able to assess their needs and suggest selling their farm (including the rice crop already in storage) and establishing a charitable trust for the Belk’s with the proceeds from the sale.

After reading a magazine article about charitable trusts, Charles contacted his CPA to ask if this was right for them. Charles and Mary were still in great health and wanted to have dependable income to enable them to pursue their love of traveling cross-country by train. Joe needed income for their medical costs, but also worried he would not be leaving anything for their children.

HIF proposed a charitable remainder trust for both, with a term of 20 years for Joe’s children.

After a charitable trust is established, each received a one-time charitable tax deduction. They receive regular payments for the rest of each couple’s lives, which supply them with a dependable income. After Charles and Mary’s lifetime, the remainder of the trust will go into the HIF endowment. And Joe and Judith’s children were written into the trust to receive regular income from the trust for a 20-year period. At the end of the 20 years, the remainder of the trust will also go into the HIF endowment. Once the funds are placed in the endowment, families around the world will reap the benefits of their charitable gift for many generations. Lives will be spared and enriched with the gift of life-sustaining and income-producing animals that will help people become self-reliant.

In Heifer International founder Dan West’s philosophy, circles are important – even sacred. In the case of the Belk brothers, what began with one cow almost 100 years ago will come full circle with one cow for someone needing help getting a start.