Using Trusts Farmland Ownership

Agriculture’s Future…Manage it Today

National Farm Business Management Conference

Michael Duffy, Iowa State University

Ed Cox, Drake University

Ag. Law Center

June 10, 2013

Outline• Acknowledgements• Objective of the study• Iowa trusts• Future work

Acknowledgements• Funding

– Leopold Center at ISU– College of Agriculture & Life Sciences at

ISU– Iowa Chapter of Am. Society of Farm

Managers and Rural Appraisers • Information & their time

– Iowa Trust Association– Iowa farmland owners

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

Iowa Farmland Trusts

1982 1992 2002 2007 20120%

2%

4%

6%

8%

10%

12%

14%

16%

18%

Percent of Iowa Farmland in a Trust by Year

Provid

e ben

efits

for a ch

arity

Protec

ting asse

ts fro

m cred

itors

Protec

ting asse

ts with

spen

dthrift cla

uses

Avoidan

ce of c

apita

l gain

s tax

es

Preven

t child

ren fr

om sellin

g lan

d

Avoidan

ce of p

robate

Planning f

or dea

th or incap

acitati

on

Estate

tax i

mplications

Provid

e inco

me for s

urvivin

g spouse

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

Already in a trust May go into a trust0%

2%

4%

6%

8%

10%

12%

14%

16%

18%

Distribution of Iowa Farmland by Use of Trusts, 2012

Revocable Irrevocable Other/DK0%

10%

20%

30%

40%

50%

60%

Distribution of Iowa Farmland in a Trust by Type of Trust, 2012

Become irrevocable Stay revocable DK0%

5%

10%

15%

20%

25%

30%

35%

40%

45%

50%

Distribution of Iowa Farmland in an Revocable Trust Based on Changes After Death of Establisher, 2012

Arizona California Illinois Iowa Missouri South Dakota Other0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

Distribution of Iowa Farmland in a Trust Based on Where the Trust was Established, 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

Land in trusts All IA farmland0%

10%

20%

30%

40%

50%

60%

Distribution of Farmland by Gender and Trust Status

Male Female

< 50 50 - 60 60 - 70 70 - 80 > 800%

5%

10%

15%

20%

25%

30%

35%

40%

Distribution of Farmland in Trust by Age of Owner and Gender

Female Male Total

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/DK0%

10%

20%

30%

40%

50%

60%

70%

Percentage of Iowa Farmland in a Trust Based on Who is the Trustee, 2012

Farming the Land Acting as the Farm Manager Delegating the Farm Management to Someone

Else

Don't Know0%

5%

10%

15%

20%

25%

30%

35%

40%

45%

50%

Distribution of Iowa Farmland in a Trust Based on Trustee’s Involvement Farmland Operation, 2012

Family Member Attorney Bank Someone Else Don't Know0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

Percentage of Iowa Farmland in a Trust Based on Successor Trustee, 2012

Yes No Don't Know0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

Distribution of Iowa Farmland in a Trust Based on Man-agement Specification Attributes of the Trust, 2012

Requires professional farm manager Specifies how to select who will manage farm

Surviving spouse's life Children's lives Multiple generations Set number of years

-10%

0%

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

Yes No DK0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

Trust Document Provides Provisions for Selecting Tenant

Trustees Owners

Related family member Know personally Young farmer getting started Be a good steward of the land0.0

0.5

1.0

1.5

2.0

2.5

3.0

3.5

4.0

4.5

5.0

Average Importance of Characteristic in Selecting Tenant for Rented Farmland in a Trust, 1 least important to 5 most important

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 Occasionally0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

Use of Professional Farm Manager

Trustees Owners

Farm

mag

azin

es

Trad

e pu

blica

tions

Gover

nmen

t pub

licat

ions

Inte

rnet

Tena

nts

Exte

nsio

n se

rvice

Expe

rienc

e0.0

0.5

1.0

1.5

2.0

2.5

3.0

3.5

4.0

4.5

Trustee Average Rating for Use of Information Sources, 1 to 5 Scale

Trustee survey

Mail TV/Radio Newspaper Internet Face to face Other0%

5%

10%

15%

20%

25%

30%

35%

40%

45%

50%

Preferred Source of Information for Farmland Owners in a Trust

Owner survey

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 Likely to Sell ALL Farm-land

More Likely to Sell SOME Farm-land

Have No Effect on Selling Farmland

RF/DK0%

10%

20%

30%

40%

50%

60%

70%

80%

Distribution of Iowa Farmland Based on Impact of Greatly Reducing or Eliminating Capital Gains Tax, 2012

Lower Capital Gains Tax

High Selling Price Per Acre

Your Retirement from Farming

Something Else RF Don't Know0%

5%

10%

15%

20%

25%

30%

Distribution of Iowa Farmland Based on Factors Most Likely to Cause Sale of Some or All Farmland, 2012

Will to family Give to family Sell to family Sell to others Put in trust Other

-10%

0%

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• Trustees tend to represent multiple

owner trusts whereas the majority of farmland reported to be in trusts was single owner or owned by a couple

• Tax avoidance and estate planning are strong reasons for using a trust but limiting children’s ability to sell or change is also noted

Observations• Most trusts were established in Iowa and

there are primarily elderly and female owners • Most trusts are set for one generation• The increasing use of trusts appears to be

slowing• 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 this is a duty• This is an area for Extension and further

research as the use of trusts continues to grow