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
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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
Percent of Iowa Farmland in a Trust by Year
18%
16%
14%
12%
10%
8%
6%
4%
2%
0%
1982
1992
2002
2007
2012
Average Ranking for Reason People Place Farmland
into a Trust, 1 Not Important to 5 Very Imporant
4.5
4.0
3.5
3.0
2.5
2.0
1.5
1.0
0.5
0.0
Provide benefits Protecting assets Protecting assets Avoidance of
for a charity
from creditors with spendthrift capital gains
clauses
taxes
Prevent children
from selling land
Trustee survey
Avoidance of
probate
Planning for
death or
incapacitation
Estate tax
implications
Provide income
for surviving
spouse
Distribution of Iowa Farmland by Use of Trusts, 2012
18%
16%
14%
12%
10%
8%
6%
4%
2%
0%
Already in a trust
May go into a trust
Distribution of Iowa Farmland in a Trust
by Type of Trust, 2012
60%
50%
40%
30%
20%
10%
0%
Revocable
Irrevocable
Other/DK
Distribution of Iowa Farmland in an Revocable Trust
Based on Changes After Death of Establisher, 2012
50%
45%
40%
35%
30%
25%
20%
15%
10%
5%
0%
Become irrevocable
Stay revocable
DK
Distribution of Iowa Farmland in a Trust Based on
Where the Trust was Established, 2012
90%
80%
70%
60%
50%
40%
30%
20%
10%
0%
Arizona
California
Illinois
Iowa
Missouri
South Dakota
Other
Number of Owners/Beneficiaries for the Trust
80%
70%
60%
50%
40%
30%
20%
10%
0%
1
2-5
Trustees
Owners
6 - 10
Percent of Farmland in Trusts by Number of Owners
50%
45%
40%
35%
30%
25%
20%
15%
10%
5%
0%
Single
Couple
Two
Three
Owner survey
Four
>4
Distribution of Farmland by Gender and Trust Status
60%
50%
40%
30%
20%
10%
0%
Land in trusts
All IA farmland
Male
Female
Distribution of Farmland in Trust by
Age of Owner and Gender
40%
35%
30%
25%
20%
15%
10%
5%
0%
< 50
50 - 60
60 - 70
Female
Male
70 - 80
Total
> 80
Distribution of Farmland in Trust Based on Primary
Reason for Owning the Land
80%
70%
60%
50%
40%
30%
20%
10%
0%
Women
Men
Current income
Long-term investment
Total
Sentimental
Percentage of Iowa Farmland in a Trust Based on Who
is the Trustee, 2012
70%
60%
50%
40%
30%
20%
10%
0%
Land owner
Family Member
Attorney
Bank
Someone Else/DK
Distribution of Iowa Farmland in a Trust Based on
Trustee’s Involvement Farmland Operation, 2012
50%
45%
40%
35%
30%
25%
20%
15%
10%
5%
0%
Farming the Land
Acting as the Farm Manager
Delegating the Farm
Management to Someone
Else
Don't Know
Percentage of Iowa Farmland in a Trust Based on Successor
Trustee, 2012
90%
80%
70%
60%
50%
40%
30%
20%
10%
0%
Family Member
Attorney
Bank
Someone Else
Don't Know
Distribution of Iowa Farmland in a Trust Based on
Management Specification Attributes of the Trust, 2012
100%
90%
80%
70%
60%
50%
40%
30%
20%
10%
0%
Yes
Requires professional farm manager
No
Don't Know
Specifies how to select who will manage farm
Perecent of Trusts by Factor to
Determine Life of Trust
60%
50%
40%
30%
20%
10%
0%
Surviving spouse's life
Children's lives
Multiple generations
Trustee survey
Set number of years
Length of Time for Farmland in Trusts
35%
30%
25%
20%
15%
10%
5%
0%
Lifetime of originator Lifetime of beneficiary Lifetime of a class of
beneficiaries
Owner survey
More than a
generation
DK
Trust Document Provides Provisions
for Selecting Tenant
90%
80%
70%
60%
50%
40%
30%
20%
10%
0%
Yes
No
Trustees
Owners
DK
Average Importance of Characteristic in Selecting
Tenant for Rented Farmland in a Trust,
1 least important to 5 most important
5.0
4.5
4.0
3.5
3.0
2.5
2.0
1.5
1.0
0.5
0.0
Related family member
Know personally
Young farmer getting
started
Owner survey
Be a good steward of the
land
Percent of Trusts by Type of Tenancy Arrangement
100%
90%
80%
70%
60%
50%
40%
30%
20%
10%
0%
Cash rent
Crop share
Custom
Trustees
Owners
Owner operated
Conservation
programs
Use of Professional Farm Manager
90%
80%
70%
60%
50%
40%
30%
20%
10%
0%
Yes
No
Trustees
Owners
Occasionally
Trustee Average Rating for Use of
Information Sources, 1 to 5 Scale
4.5
4.0
3.5
3.0
2.5
2.0
1.5
1.0
0.5
0.0
Farm magazines
Trade
publications
Government
publications
Internet
Trustee survey
Tenants
Extension
service
Experience
Preferred Source of Information for Farmland Owners
in a Trust
50%
45%
40%
35%
30%
25%
20%
15%
10%
5%
0%
Mail
TV/Radio
Newspaper
Owner survey
Internet
Face to face
Other
Are There Provisions for Soil Conservation
in the Trusts?
100%
90%
80%
70%
60%
50%
40%
30%
20%
10%
0%
Yes
No
Trustees
Owners
DK/RF
Should Soil Conservation or Sustainable Agriculture
be Factors in Managing Farmland in a Trust?
100%
90%
80%
70%
60%
50%
40%
30%
20%
10%
0%
Yes
No
Trustee Survey
Distribution of Iowa Farmland Based on Impact of Greatly Reducing or
Eliminating Capital Gains Tax, 2012
80%
70%
60%
50%
40%
30%
20%
10%
0%
More Likely to Sell ALL
Farmland
More Likely to Sell SOME
Farmland
Have No Effect on Selling
Farmland
RF/DK
Distribution of Iowa Farmland Based on Factors Most Likely to Cause
Sale of Some or All Farmland, 2012
30%
25%
20%
15%
10%
5%
0%
Lower Capital
Gains Tax
High Selling Price
Per Acre
Your Retirement
from Farming
Something Else
RF
Don't Know
Distribution of Iowa Farmland by Anticipated Method
for Distributing Farmland, 2012
60%
50%
40%
30%
20%
10%
0%
Will to family
Give to family
1982
Sell to family
1992
2002
Sell to others
2007
2012
Put in trust
Other
Distribution of Iowa Farmland that may go into a Trust
Based on the Reason for Considering a Trust, 2012
90%
80%
70%
60%
50%
40%
30%
20%
10%
0%
Potential tax savings Help keep farmland in
Limit
family
beneficiaries'control
over assets
Relieve burden on
others
Other reason
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