Dividing land could be farm’s end
Is equal fair? We will be hearing this question over and over again during the coming monumental transfer of Iowa farmland as the current “baby boom” generation retires and passes on. There is no one right answer, but it is clear: Dividing farmland equally among farming and non-farming offspring means we are going to lose many Iowa farms.
Dan Wilson of Paullina is one of the farmers who is concerned. Last year, his mother, Beth, transferred her 640 acres to a limited liability company, making Dan the manager and giving Dan and his three nonfarming siblings equal shares.
Dan has farmed the land his entire adult life. His brother Brent works at a Des Moines area company; sister Holly is a corporate manager who lives on the East Coast; and brother Colin used to farm but now is a missionary in Haiti.
Dan and his wife, Lorna, have five children: Son Torray (and wife Erin) farm with Dan and Lorna. Son Jaron is starting to farm with them. Daughters Robin and Faye live close by but do not farm. A third daughter, April, had lived in the Twin Cities but has moved home and may want to farm. Dan’s mother, Beth, lived on the farm until 2009 and now lives in town. His father is deceased.
• Dividing farmland equally among farming and nonfarming heirs raises issues.
• A farm succession plan needs to be structured to allow future flexibility.
• There is no “right plan” for everyone on how to handle family farm succession.
Use a trust or an LLC?
Beth transferred the 640 acres to the LLC, because “she didn’t want to see half the farm sold to pay taxes,” when she dies, Dan says. Beth originally wanted a trust, but the Wilson lawyer advised that an LLC would be better because that structure would allow for more planning on how to continue the farm. He said sometimes trusts can cause rifts in a family after the parents are gone.
Originally, each child would have received 160 acres, and Beth didn’t want any of them to turn around and sell. “So now we each have one-fourth interest in the LLC,” says Dan.
The LLC structure doesn’t recognize that Dan’s family has put its life’s work in the farm. Instead, Dan gets the same interest as the others. Dan has added value to the farm. In addition, Dan spends a lot of time taking care of Beth, which is a family issue but important as well.
His siblings have retirement accounts. For years Dan thought his retirement income was going to come from renting his portion of the farm ground. Dan’s dad retired when he was 62, and he then got half of all the rental income from then on until his death. So his retirement account was Colin and Dan at first; then Dan when Colin stopped farming. With the new LLC, Dan will get only one-fourth of the rental income. Three-fourths goes to his non-farming siblings.
Other details to consider
And his children who are farming will get even less. There are 15 in the next generation. Lorna and Dan are taking a financial investing course to broaden their horizons on how to pay for retirement.
Dan and siblings are discussing whether the LLC could buy life insurance for the nonfarming heirs to give Dan’s children a better chance at being able to farm. Lorna and Dan have already taken out a co-policy with their nonfarming kids as the beneficiaries.
Brent has his mom’s financial power of attorney. So there are some potential differences there, as Brent is trying to get the most money for Beth. Brent wants the county average rental rate; Dan would like a discount on the rent, as that is most advantageous for his sons (who are the renters). Brent wants Dan to charge an hourly rate for managing the LLC. Dan doesn’t want that hassle.
Beth used to give Torray and Erin a discount at least in part because of the beginning farmer tax credit. But now the LLC can’t take advantage of that. Still the new LLC has its benefits as well as burdens.
LLC has benefits, burdens
Through the process, the Wilsons found out that the ownership of some of the land was not what they had thought. Years ago, an attorney had failed to record the change transferring some of the land to the offspring, with Beth retaining a lifetime use.
Dan reports there is indeed more conversation between the siblings because of the LLC. Dan has met regularly with Brent, and there is better communication. With Beth gone, it would have been harder. “Mom was here to tell us what she wanted,” says Dan. “The LLC really fired up my mother. She felt a huge burden lifted once it was established. Her top goal was to see the farm stay together. That was her and her husband’s life’s work.”
Beth may be at peace, but for Dan and his family, the process of keeping the family farm going for his next generation is not clear. “We realize we have just begun.We have met our Mom’s needs to keep the farm together for now and reduce estate taxes. We have a framework in place that we can build on,” Dan says. “There needs to more conversation and work to get to where we need to be.”
This article published in the September, 2014 edition of WALLACES FARMER.
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