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Beware of the ‘free’ steak dinner while planning farm’s future

Seek out the right specialists when planning for retirement, farm transition.

Mike Downey

March 16, 2022

4 Min Read
Midwest farm aerial view
Getty/iStockphoto/AlenaMozhjer

“Watch out for those free steak dinners,” warned Kristine Tidgren to a group of farmers and landowners this winter. “There is no one size fits all approach.”

Tidgren is the director of the Center for Agricultural Law and Taxation at Iowa State University. Kristine’s talk was about avoiding the common pitfalls when it comes to transitioning the family farm. One of these common pitfalls is families who fail to seek good counsel.

Her comments hit home for me as I run across these pitfalls all too often. I will share some of these in my next few blog posts which I hope provide insight as you consider your future needs and those of your family farm too.

For today’s post, I share two examples that relate directly to Kristine’s comment.

“We just updated our wills, so we should be all set, right?”

This Iowa farm couple wants to avoid the probate process they saw one of their parents experience. They met with an attorney who set them up with what seemed to be boilerplate wills, leaving all assets to each other, and then all assets split equally amongst the kids when the second parent passes away. They had the impression this would avoid the probate process since they’re leaving everything to one another.

That’s not exactly true.

Ownership

Ownership of your real estate dictates its distribution, not your wills.

Related:Lessons we can learn from three generations of buying farmland

In this case, we found they held title in their real estate in multiple ways. Some parcels were owned personally, some owned as joint tenants, and some as tenants-in-common. The joint tenancy real estate with full right of survivorship will accomplish their goal; however, the remaining real estate will trigger a probate in order to legally transfer to the surviving spouse.

Tip: Be sure the ownership of your assets complements your estate planning documents.

Undivided interests 

Their wills will eventually pass all the real estate to their children with each of them owning an undivided equal interest as tenants-in-common. This is yet another potential pitfall in their long-term planning as their goal is for the family farm to always stay together as long as someone in the family is farming. With undivided ownership, it technically only takes one to force a strong hand on lease negotiations, or in a worst-case scenario, force a partition sale of the family farm.

Tip: Strongly consider (and become aware) of the best options available to structure the ownership of your farmland to complement your long-term goals.

“We’re protected because we have trusts.”

This Illinois farm couple brought several thick, three-ringed binders to our first meeting. These were the result of an estate planning seminar they attended several years ago. In addition to their trusts, they also purchased nursing home and life insurance policies. This couple’s greatest concerns involve their future long-term care, estate taxes in the state of Illinois, as well as protecting the family farm. They had the impression they were covered on all accounts.

Related:What exactly is a ‘life estate’ gift of farmland?

Trusts

They each had a revocable living trust. Since they are revocable, they still own and control all their assets. Revocable trusts are simply legal documents to carry out estate planning wishes rather than using wills. One requires going through the probate administration process, one does not. Neither provides any asset protection since in both cases they still maintain full ownership and control of their assets.

Tip: There is no perfect planning strategy when it comes to protecting the family farm. The only way to truly protect assets is by transferring ownership (so you don’t own or control them anymore). This may involve selling, gifting, or a combination of both. In terms of a trust, the assets could be gifted into an irrevocable trust. Just keep in mind, in addition to gifting the farm, you also gift the income from the farm you may need to support you and your living needs.

These are all complex issues that require advice from specialists. We’ll take the issues this Illinois farm couple experienced one step further in my next blog.

Downey has been helping farmers and landowners for the last 22 years with their family farm transition, estate planning, leasing strategies, finances, and general land consultation. He is the co-owner of Next Gen Ag Advocates and an associate of Farm Financial Strategies. Reach Mike at [email protected].

The opinions of the author are not necessarily those of Farm Futures or Farm Progress. 

About the Author(s)

Mike Downey

Co-Owner, Next Gen Ag Advocates

Mike Downey is co-owner of Iowa-based Next Gen Ag Advocates and an associate at Farm Financial Strategies. His passion for helping farmers and landowners stems from his own farm roots, growing up on his family’s grain and livestock farm near Roseville, Ill.

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