Timber, Transfers, and Taxes: Grantor Trust Sales with Timberland Family Partnerships

By John G. Hodnette

Timberland continues to be an attractive alternative investment class for high net worth individuals who are looking for a way to further diversify their investment portfolios beyond equities, bonds, and traditional real estate. The Fall 2017 KPMG, LLP Timberland Investor Sentiment Survey suggests that timberland may rise in value in the coming years, as American housing climbs back to all-time highs and China’s trend towards banning its commercial logging potentially drives international demand for timber. The Hancock Timberland Investor February 2019 newsletter analyzed US private timberland’s investment performance in 2018. The National Council of Real Estate Investment Fiduciaries Timberland Property Index (TPI) reported a total return of 3.2 percent for calendar year 2018. The TPI is based on 453 timberland properties across 12.5 million acres within the United States with a combined market value of $23.1 billion. This 3.2 percent return was an improvement from 2017’s 2.8 percent and the highest annual income return reported for US timberland since 2006’s 4.6 percent. The TPI is made up of both capital appreciation of the timberland itself and the operating income. But 2018’s 3.2 percent was almost entirely based on increases in operating income. Almost two-thirds of the TPI is made up of southern US timberland.

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