Estate Planning with Federal Grazing Permits
THE COUNSELOR
Volume 8 • Issue 2 • February 2018
The Counselor is a monthly newsletter of Hallock & Hallock dedicated to providing useful information on estate planning, business succession planning and charitable planning issues. This month’s featured article is written by guest author, Dan Dygert. Mr. Dygert graduated from Utah State University in 1996, and has lived in Cache Valley since 2001, where he practices law in the areas of business law, real estate, agriculture, water rights and commercial litigation. This article will discuss planning for federal grazing permits. If you are interested in learning more about the ideas and processes discussed in this newsletter, please contact us for an initial consultation.
Grazing permits on lands administered by the Bureau of Land Management (BLM) or the U.S. Forest Service (Forest Service)¹ present a unique challenge in estate planning and asset protection. While an individual typically has a substantial amount of flexibility in structuring the ownership and transfer of his or her assets, the holder of federal grazing permits must deal with tightly-controlled ownership restrictions that apply to his or her base property and permitted livestock. It is essential that these restrictions are accounted for in any estate or asset protection plan in order to avoid the risk of losing the permits.
Forest Service - Base Property and Livestock Requirements
To qualify for a term Forest Service grazing permit, an applicant must own base property² and livestock, subject only to certain limited exceptions.³ What the Forest Service wants to see is the same name on the deed to the base property and on the brand registration, and for all permitted cattle to be carrying the correct brand.
It is not sufficient for the permittee to lease the base property or the livestock – ownership is required. In addition, the permit holder is prohibited from leasing base property or permitted livestock to a third party and allowing them to use the grazing permits. It is also prohibited for the permittee to acquire "title" to the livestock under a resale or other agreement where the livestock is reacquired from the permittee at the end of the grazing season as part of a pre-arranged buyback transaction.
BLM – Base Property and Livestock Requirements
BLM requires ownership or control of base property (4). While BLM does not require ownership of the livestock, it does require proof of control (typically through a lease) and adds a surcharge for grazing livestock not owned by the permittee (with some exceptions for sons and daughters of the permittee). The amount of the surcharge is based on the private grazing land lease rate and can increase grazing fees substantially.
Estate Planning and Asset Protection Implications
An individual may have a variety of legitimate reasons for structuring its ranching operations in ways that run afoul of Forest Service and BLM ownership requirements. For example, an individual may want to divide the land equally among all of his or her heirs while leaving the livestock and ranching operation to the heir who lives and works on the ranch. While the BLM would allow the heir inheriting the livestock to lease base property from the other heirs, the Forest Service would prohibit this arrangement. In another scenario, if one of the heirs leases cattle from the named permit holder as part of the overall plan, he might suddenly be faced with prohibitively expensive grazing surcharges. Ultimately, a ranch owner must be very careful when putting land and livestock into different entities or trusts or transferring ownership over time through gifting.
A common asset protection strategy is to place land ownership and the operating business in separate entities in order to shield the land from liabilities that may arise during the course of business operations. While this is still a viable strategy for ranches utilizing Forest Service and BLM grazing permits, this arrangement will be scrutinized more closely by government agencies and ownership of the respective entities will need to be carefully established and maintained.
This is an area that is definitely not “one size fits all.” Each ranching operation is unique in family dynamics, individual goals, management, ownership, and how the grazing permits fit into the overall operation. Nevertheless, while grazing permits create an added layer of complexity, a careful estate plan will allow for a wide variety of goals to be achieved without jeopardizing the future of the ranch.
¹ This article only addresses issues related to federal grazing permits issued by the U.S. Forest Service and BLM. Although grazing leases on state lands typically have more flexibility than federal grazing permits, those grazing leases need to be reviewed on a case by case basis to ensure compliance with the terms and conditions of the grazing lease and any applicable state regulations.
² Base property is land owned and used by the permittee for a farm or ranch operation. Such property shall include the basic facilities necessary to conduct a ranching operation and the capability to produce a part of the annual forage crop needed to support the permitted livestock over a year-long period as determined by the Regional Forester.
³ The following exceptions may apply: 1) Strict compliance may be waived for up to three years in order to allow for estate administration; 2) Up to 50 percent of the permitted livestock may be owned by children; 3) Separate ownership of base property and livestock by two separate legal entities may be permitted if they have the same ownership; and 4) Routine marketing of livestock is allowed so long as there is a bona fide transaction as evidenced by actual transfer of funds for the full value of the animals.
4 For most of the West, the base property is land capable of serving as a base of operation for livestock use. For the desert southwest, base property can be water.
This Newsletter is for informational purposes only and not for the purpose of providing legal advice. You should contact an attorney to obtain advice with respect to any particular issue or problem. Nothing herein creates an attorney-client relationship between Hallock & Hallock and the reader.