As mentioned in our post last Friday, farming demographics are evolving. As current owners and potential owners of farm interests plan ahead for their future, seeking the advice of an attorney is well worth the time and effort. It is crucial to get a realistic grasp of both the opportunities available and the pitfalls that can catch the unprepared farmer by surprise. For new farmers, important issues to grasp are the obligations involved with farming contracts, how the IRS is involved with your farming career, dealing with federal and state agricultural and natural resource agencies, or understanding an easement with a neighboring land.
A long-time farmer should be informed about the federal and state (Iowa is one of eighteen states with its own) estate or inheritance tax, about their current estate plan and whether it needs to be updated (e.g., who gets the farm after they die?), and what options exist to keep the farm in the family. Not surprisingly, many clients wish to give their children an interest in the farm, a typically huge asset in Iowa. This distribution is often intensely personal, representing both the years of hard work it took to keep up the property and the caring bond between parents and their children. It is also necessary, however, to realize that this is an extremely important economic decision, and like many business decisions, it can be crafted to best suit particular personalities. The farming operation can be seen as a composite of three key business elements: (1) the capital or wealth provider, (2) the management team that makes decisions on how the farm should be operated, and (3) the labor force for the farm. Traditionally, these three elements were wrapped up into one person (even more traditionally, the oldest son was granted all three roles by default). The farm would be given outright to that person, who would then make all management decisions and provide the labor for the farm, or hire farmhands.
But these interests can be separated into multiple teams or persons, similar to the way a corporation has its own board of directors, officers, and employees. A trust can be created that holds the property, and management decisions can be provided by several or all children, who then vote on decisions impacting the land. For instance, how many acres of corn vs. soybeans will be planted in the upcoming crop-season? Should we rent out acres, or does one of us actually want to provide the labor for the farm? Should some acres be enrolled into CRP? Should we set up some hives and keep bees on the side? The list of possibilities is long and varied.
The bottom line is that for many older farmers, as they realize they won’t be around forever to oversee the continuation of what they’ve put so many years into, a customized estate plan can be created that bucks the conventional single distribution method and helps to provide more security for their intentions regarding their property. And for many younger farmers, it’s great to get a good start on your career by speaking with advisers who can provide some insight from the aglaw view.