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Iowa Farmland Trusts
Iowa State Bar Convention
West Des Moines, IA
Michael Duffy, Iowa State University
Ed Cox, Drake Agricultural
Law Center
June 19, 2013
Objectives• To determine the extent and nature of
farmland ownership by trusts in Iowa• Determine the effects of public policy on the
expansion of ownership by trusts.• Determine the legal obligations of, and
remedies available for, trust parties in relation to the sustainability of trust assets and develop potential state policies that help ensure compliance with fiduciary duties relating to sustainable land management.
Methodology• Internet survey of members of Iowa Trust
Association; – 29 responses; unsure of exact
representation for the survey; 25 had trusts that included Iowa farmland;
• Added questions to the Iowa Farmland Ownership survey; every 5 year survey of Iowa farmland ownership by ISU; telephone survey using 40 acre tract as unit of sample; most answers are as a percent of farmland not people
1982 1992 2002 2007 20120%
2%
4%
6%
8%
10%
12%
14%
16%
18%
Percent of Iowa Farmland in a Trust by Year
Prov
ide
bene
fits fo
r a cha
rity
Prot
ectin
g as
sets
from
cre
dito
rs
Prot
ectin
g as
sets
with
spe
ndth
rift c
laus
es
Avoid
ance
of c
apita
l gai
ns ta
xes
Prev
ent c
hild
ren
from
sel
ling
land
Avoid
ance
of p
roba
te
Plan
ning
for d
eath
or i
ncap
acita
tion
Esta
te ta
x im
plicat
ions
Prov
ide
inco
me
for s
urvi
ving
spo
use
0.0
0.5
1.0
1.5
2.0
2.5
3.0
3.5
4.0
4.5
Average Ranking for Reason People Place Farmland into a Trust, 1 Not Important to 5 Very Imporant
Trustee survey
Revocable Irrevocable Other/DK0%
10%
20%
30%
40%
50%
60%
Distribution of Iowa Farmland in a Trust by Type of Trust, 2012
1 2 - 5 6 - 100%
10%
20%
30%
40%
50%
60%
70%
80%
Number of Owners/Beneficiaries for the Trust
Trustees Owners
Single Couple Two Three Four > 40%
5%
10%
15%
20%
25%
30%
35%
40%
45%
50%
Percent of Farmland in Trusts by Number of Owners
Owner survey
% of Land in a Trust % of Land Not in a Trust0%
10%
20%
30%
40%
50%
60%
Percent of Farmland by Trust Ownership and Gender
Male Female
< 54 55 - 64 65 - 74 > 74 < 54 55 - 64 65 - 74 > 74MALE FEMALE
0%
5%
10%
15%
20%
25%
30%
35%
Percent of Farmland in a Trust or not in a Trust by Age and Gender
% of Land in a Trust % of Land Not in a Trust
Women Men Total0%
10%
20%
30%
40%
50%
60%
70%
80%
Distribution of Farmland in Trust Based on Primary Reason for Owning the Land
Current income Long-term investment Sentimental
Land owner Family Member Attorney Bank Someone Else/DK
-10%
0%
10%
20%
30%
40%
50%
60%
70%
Percentage of Iowa Farmland in a Trust Based on Who is the Trustee, 2012
Surviving spouse's life Children's lives Multiple generations Set number of years0%
10%
20%
30%
40%
50%
60%
Perecent of Trusts by Factor to Determine Life of Trust
Trustee survey
Lifetime of originator Lifetime of beneficiary Lifetime of a class of beneficiaries
More than a generation DK0%
5%
10%
15%
20%
25%
30%
35%
Length of Time for Farmland in Trusts
Owner survey
Cash rent Crop share Custom Owner operated Conservation programs0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
Percent of Trusts by Type of Tenancy Arrangement
Trustees Owners
Yes No DK/RF0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
Are There Provisions for Soil Conservation in the Trusts?
Trustees Owners
Yes No0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
Should Soil Conservation or Sustainable Agriculture be Factors in Managing Farmland in a Trust?
Trustee Survey
More
likel
y to
sel
l all
farm
land
More
likel
y to
sel
l som
e fa
rmla
nd
No eff
ect
DK/RF
0%
10%
20%
30%
40%
50%
60%
70%
80%
Distribution of Iowa Farmland Based on Impact of Eliminating or Greatly Reducing Capital Gains Tax
Land in Trust Land not in a Trust
Lower Capital Gains HigherSelling Price Retirement Something else Not planning to sell DK/RF0%
10%
20%
30%
40%
50%
60%
70%
80%
Percent of Iowa Farmland Based on Factor to Prompt Selling Some or All Farmland
Land in Trust Land not in a Trust
Will to family Give to family Sell to family Sell to others Put in trust Other0%
10%
20%
30%
40%
50%
60%
Distribution of Iowa Farmland by Anticipated Method for Distributing Farmland, 2012
1982 1992 2002 2007 2012
Pote
ntia
l tax
sav
ings
Help
keep
farm
land
in fa
mily
Limit
bene
ficia
ries'c
ontro
l ove
r ass
ets
Relie
ve b
urde
n on
oth
ers
Other
reas
on0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
Distribution of Iowa Farmland that may go into a Trust Based on the Reason for Considering a Trust,
2012
Observations• The majority of farmland reported to be in
trusts was single owner or owned by a couple
• Tax avoidance and estate planning are the main reasons for using a trust but limiting children’s ability to sell or change and other reasons are noted
• The use of trusts is most prevalent with females and older land owners
Observations• Most trustees are the land owners and
most trusts are revocable• Most trusts are set for only one generation• The increasing use of trusts appears to be
slowing; saturation or 2007 to 2012 land market?
• For most landowners taxes are not the major consideration in whether or not to keep their farmland
Observations• Conservation and sustainable agriculture
practices are almost totally absent from trusts
• Trustees believe soil conservation is a duty• The impact and desirability of having
conservation practices in a trust needs to be researched and discussed
Not a new idea.• “[H]e must be too improvident a man to be a good
farmer, who should invest in the land capital sufficient for high cultivation, without some security ….” — George Wingrove Cooke, Attorney, 1850.
• “The tenant who expects to remain but a short time on a farm has little incentive to conserve and improve the soil .…” — Report of the President’s Committee on Farm Tenancy, February 1937.
• “I’m not going to want to put in hundreds of hours of sweat-equity into soil that I may not have next year.”— Iowa farm tenant, 2001
Land Tenure Significance
There are New CircumstancesDisconnection from the Land• Geographic• Cultural
Symptoms• Leases/Cash Rent?• Trusts?
Next Generation Landowners• Secondary Income• Environmental Concerns
Corresponding Public Policy Historically Focuses on Farm Leases
• Lease Termination Statutes (Iowa Code 562)– Upheld in Benschoter v. Hakes on police
power grounds to prevent soil exploitation and waste.
• Covenant of Good Husbandry.– Implied Covenant referenced in Iowa and a
dissent in Moser v. Thorp Sales Corp. based on protection of soil.
Soil Asset Protection in Private Contracts
• Leases ✔ • Land Contracts• Covenants• Articles• Trusts
A Closer Look at Trusts
• Multiple parties – potentially more than a lease.
• Fractionated interests• Usually, though not exclusively,
managed by a non-operator• Provisions of the document rule.
Public Policy• Nothing specifically addressing land stewardship.• How do legal duties apply to soil assets?
– Survey: 91% of trustees say soil conservation is a factor in executing their fiduciary duties.
– Variations in significance of this factor:• “Soil conservation has a direct relationship to the quality
and value of the asset (farmland) in which the Trustee is to manage.”
• “Only if failure to do so would affect the land in a substantially negative way.”
– How do we measure the economic impact of soil loss?
Trustee’s Duties• Owed to Beneficiaries
– Remaindermen have remedies• Loyalty and Impartiality• Special Skills• Administer as a prudent person
– Determination “focuses primarily on the ‘purposes, terms, and other circumstances of the trust.’” (Heidecker Farms v. Heidecker, 791 N.W.2d 429) (2010)).
• Exercise care, skill and caution in delegation• Duty to Inform and Account• Leases as a record: terms and enforcement of
conservation and husbandry provisions?
Adherence to Trust Provisions• Trustors have the power to direct asset
management to some degree.• Survey shows
• Significance may increase as land passes to non-farming heirs.
Yes No DK/RF0%
20%
40%
60%
80%
100%
Provisions for Soil Conservation
Trustees Owners
Limits on Trust Terms?• May not authorize the trustee to:
– Act in bad faith,– Disregard the purpose of the trust, or– Disregard the interests of the beneficiaries.
• Does this require a balance between stewardship and production?– How much does the express purpose control?
• What about off-farm conservation purposes?
Thank-you
Mike Duffy478 Heady Hall, ISU
Ames, IA [email protected]
Ed CoxDrake Agricultural Law Center
2621 Carpenter AvenueDes Moines, IA 50311