Expert Advice on Land Trusts
Tips from expert Neil Harl.
One decision farmers often face during estate planning is whether or not to establish land trusts. So we asked the advice of Neil Harl, an emeritus Iowa State University economist and agricultural law professor. He is author of Farm Estate and Business Planning (published by Agricultural Law Press), and offers these tips.
Know your trusts.
According to Harl, the three most common land trusts include revocable, irrevocable and testamentary. A revocable land trust—the most widely used—can be changed or amended by the trustee in his lifetime. Alternately, an irrevocable land trust cannot be changed once it is established. A testamentary trust becomes active upon the death of the person who writes that trust into his will.
Points to note: Revocable trusts become irrevocable when the person with the power to revoke passes away. And testamentary trusts are actually categorized as irrevocable, because the trustor has died and does not have the ability to make changes.
“Let’s not let the dead hand of the past control the present.” –Lewis Simes, legal philosopher
With regards to irrevocable trusts, Harl is fond of using this quote when he consults farmers on trusts. A trust allows the present landowner to control the disposition, mortgaging and use of the land. “However, it’s important to remember that in many states, trusts cannot be set up to last forever,’’ he says. “After you die, don’t be disappointed if your children talk differently than they did when you were living,” he says, with a slightly antic tone. He believes that because no one knows what the future will bring, farmers need to consider the fact that their decisions could become troublesome for their heirs. “In 100 years or even 20 years, that land may not be used for farming,” he says. “It may become part of a nearby airport or highway.”
The trust serves different purposes at different stages in one’s life.
Harl offers the example that for a young couple with minor children, the pressing need is usually for a trust to handle the family assets in the event that both parents die or are killed. Later in life, he says, a trust provides standby management assistance if health begins to fail.
You must have confidence in the people you turn to for advice.
He says state universities or extension offices are often excellent resources for research literature on trusts. And when you are ready to consult an attorney, find one who deals specifically with estate planning.
Don’t make a trust decision in isolation.
Speaking of estate planning, a land trust directly affects that. Yet, it also has a significant affect on your overall business. So, Harl says, make trust decisions in conjunction with business planning decisions. Using a hypothetical scenario, let’s say you have set up an irrevocable land trust. Upon your death, you no longer own that trust. So, your farmland is no longer eligible for special use valuation as it might have been prior to your death. In addition, trusts can affect eligibility for federal farm program payments, although that impact has been minimized in recent years.
Collect your documents. Know your assets.
Dig out all information regarding your land and any other assets, such as stocks, bonds and any real property owned in other states that would go into the trust. Have it listed, identified and valued. The purchase date is helpful. Are there any unusual features of the assets, such as co-ownership with someone else? Is there anything that would impinge upon the management of those assets going forward, such as the registration of animals with a breed association? The eventual trustee will need to have as much information about those assets as possible.
Surprisingly, there’s little information online about setting up trusts, beyond conservation trusts, possibly because rules and regulations vary from state to state. The USDA does offer some related information at the following websites:Show Full Article