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The Unique World of Estate Planning for Farmers & an Update on Iowa Tax Bill for Farmers

Podcast Overview

Goosmann Law Firm Sioux Falls Managing Partner and a Trust Law Counsel Leader Barry Sackett joins Host Jeana Goosmann to discuss the unique world of estate planning for farmers and they also touch on a new tax bill that could impact farmers in Iowa regarding their retirement income.

In this episode they discuss:

  • What is Trust Law Counsel
  • Options that farmers and ranchers have with their succession plan
  • Benefits for 1031 Exchange
  • Options for people who inherit land but do not wish to farm
  • Recent changes to taxes in Iowa that could impact farmers and their retirement income

Listen to podcast now. 

Podcast CaptureTranscript 

Goosmann Law Firm (00:01):

Do complex legal issues hold you back. Let's get energized and bring clarity to your top legal questions. This is Law Talk with the Flock by Goosmann Law Firm.

Jeana Goosmann (00:30):

Hello, I'm your host, Jeana Goosmann, a CEO lawyer, author and woman business owner here to help navigate you through the law, your business and life as a leader. For today's episode, I have with me my partner, the managing partner of Trust Law Council, Barry Sackett. Barry is our Trust Law Counsel leader here at Goosmann Law Firm, and his main office is in Sioux Falls, South Dakota. Today we're going to talk about the ins and outs of succession planning for farmers in ranchers. Welcome Barry.

Barry Sackett (01:01):

Thanks, Jeana. Really excited to be here.

Jeana Goosmann (01:04):

Barry, if you could just tell our listeners a little bit about yourself.

Barry Sackett (01:09):

Yeah, as you said, I currently sit in Sioux Falls, but grew up in northwest Iowa. I practiced with my, my father and my grandfather in a firm that started 1918. I have a lot of farmer and rancher clients throughout the years. Both in production and processing and transportation and feed, and kind of the whole gamut of the agricultural space. Our Trust Law Counsel has a lot of those clients throughout the Midwest, in Nebraska, South Dakota, Iowa, Minnesota, and we do a lot of work in that area. We really focus on those folks that are looking at keeping their farming operations in their family or passing them on and putting them into good hands. We understand the, the value that our clients place in the land that they've spent so, so much of their lives, and generations on.

Jeana Goosmann (02:08):

As a farmer's daughter, myself, I can tell you that my dad put a lot of stock in ground, he just liked an asset that you could go out and kick if you wanted to.

Barry Sackett (02:19):

That's right, my family is going on to our second and third generation of, of farm ground as well. So, we're very, very much in touch with that feeling.

Jeana Goosmann (02:29):

So Barry, you mentioned Trust Law Counsel, tell us about your team and what the team at Trust Law Counsel looks like today.

Barry Sackett (02:37):

Well, our team is made up of estate planning attorneys and then specialists in certain areas. We are fortunate that we're sitting in Sioux Falls, South Dakota, and we, we have what we call the South Dakota Advantage. The trust laws and the trust industry in South Dakota is very well developed and really leads the nation and in some ways leads the world and how we handle generational wealth. Both for protection of assets and secrecy of certain aspects of how things happen. But mainly we've got very talented professionals that know how to keep assets together and manage them, protect them and we're able to offer those services in the other states that we work in, in both Minnesota, Iowa, Nebraska, and really around the country. We've got clients from all over. So we've also got a very strong back room, as far as administrating to trust and working through probate for our clients that get in that situation. We've got attorneys and support staff in all four of our offices in Spirit Lake, Sioux Falls, Sioux City, and Omaha.

Jeana Goosmann (03:50):

Outstanding. So let's focus in a little bit more on farmers and ranchers and what are some specific options that they should consider in their succession plan?

Barry Sackett (04:02):

Well, you know, those options have changed a lot over the years as the estate planning exemptions have changed as some state laws have changed. The size of, of your operation makes a difference about what things we might look at. But generally creating a trust for a family that owns ground and wants to make sure that that ground stays in the family for the next generation with enough flexibility that if some of the next generation want a farm and some don't, or if some want to own ground and some don't, that we've got that ability to still hang onto the land. Luckily a lot of farmland and ranch land is without a lot of debt against it. So that gives us options. And then, you know, also looking at how that land is managed and make sure that the trustee has the ability to hire the right tenants for the ground and to keep that productive for generations to come.

Jeana Goosmann (05:09):

Great. And I always think if you know, you're a farmer and you're wondering why does your neighbor own their ground in a trust, that's a great opportunity to give you a call and find out why.

Barry Sackett (05:19):

That's exactly right. I think if you pull out your plat book and you look around you, most farmers will find out that, a majority of the ground around them is held in trust. The reasons that I just mentioned certainly there's tax, both income tax considerations to make on, on how things are taxed currently, but certainly, as the, the prices of farm ground continues to rise to astronomical levels, many more people are looking at estate tax, considerations when they're looking at their holdings and how do they avoid that and make sure that the land can get into the next generation without having to pay a lot of tax.

Jeana Goosmann (06:00):

And at a fundamental level, if it's held inside of a trust, you can avoid probate when the owner passes away and keep it out of the court system and tied up for a year and a half.

Barry Sackett (06:10):

That's right. If you can avoid probate that gives you obviously more ability to manage that ground as you're going through the family transitions, but it also creates a large amount of privacy as far as how things are held and you know, if there's issues within your family, those things don't need to be, aired in public and can be handled by the trustee.

Jeana Goosmann (06:32):

You mentioned secrecy, and I think that is attractive to a lot of farm families. I know in my personal family and my grandparents, you know, who owned what and what was valuable. Some people really like and value secrecy. Can you touch upon that a little bit more, Barry?

Barry Sackett (06:51):

Well, it's funny you say that. You know, I have clients that live a section apart and don't know anything about the, the farmer on the next section. It could be very isolated, but, you know, the other thing is that there's a lot that happens within a farm family in the generations. And part of that history is family lore. It's not public lore. And it's important to remain harmony, certainly in-laws and spouses can get involved when things are public. That doesn't help the situation as far as farming family harmony. And so we can create, ability to have, as I often say, cooler heads, manage the property and not have everybody involved in it.

Jeana Goosmann (07:35):

Let's shift over a little bit and talk about 10 31 exchange and how might that be a benefit?

Barry Sackett (07:42):

Well, most farm ground that is in Iowa hasn't changed hands. And when I say most probably 80% of it hasn't changed hands in the last 20 years, which means that the basis, the value of that land in the, in the owner's hands is what that land was worth 20 years ago. So on the whole less than a thousand dollars an acre, and now we're seeing, you know, 25 to $30,000 an acre. So that gain is going to be taxable if it's sold during someone's lifetime. So we have a number of clients, for example, that have farm ground that border Sioux Falls or Omaha or Sioux City that turns into development land and often they're able to do a 10 31 exchange, which basically means you don't get the cash from the sale, but you utilize that cash to buy more like ground. So if it's a 80 acres of development ground that's adjacent to Omaha and we're able to get $50,000 an acre for it, we can go out and buy five times as much land at $10,000 an acre out in Nebraska. And so often that's a way to certainly benefit the next generation by having that kind of productive farm ground both in the income that it generates, but then also the appreciation as your family's building wealth.

Jeana Goosmann (09:09):

Barry, let's check on the situation that does come up quite a bit where somebody inherits some farm ground, but they don't actually want to work the farm and be the farmer. What do you recommend for those folks?

Barry Sackett (09:21):

Well, you know there's certainly farm managers out there and some national farm managers that would take over the ground. Often that comes with a price. Another way certainly to do it is to create a trust and have a trustee. And I've got clients that manage a lot of ground for others, and that can be a negotiation. So if you've got a relation there that makes that easier. And then, you know, another way to do it is to kind of do it yourself, but have a good farm tenant. The relationship between farm tenants and landlords is very important. You want somebody that cares about your land and is certainly maintaining it. It's a partnership. Improvements need to be made in titling and other things that needs to be a joint effort. But you know, we've been very successful in setting up good lease arrangements so as prices rise both parties benefit and those leases can be very important for tax purposes and other things as you're getting into them. And we can talk maybe a little bit about that as well.

Jeana Goosmann (10:32):

You bet. So when you're looking at all these different options, there's a lot that goes into it, and I think having people that have this knowledge about farms and how to do succession planning it really is a unique area of estate planning. Would you agree?

Barry Sackett (10:48):

I would. You know and the other thing that I get a lot of clients that come in and they've had a banker tell them what to do, or they've got a crop insurance agent telling them what to do or they've got a neighbor telling them what to do. There's a lot of information out there, there's a lot of things that owning your ground and certainly passing your ground into the next generation touch. So, we're in this business and we see it every day. We certainly rely on a lot of partners in the industry, but guess I just want to give a warning to people that it is a complex matter and somebody with one piece of advice might not be the whole picture that you need to look at when you're seeing how these things happen, because the plan that you make isn't going to happen right away. It's going to happen maybe 10 years down the line. So you really need to understand what's going to be different in 10 years.

Jeana Goosmann (11:48):

That's a really good point. I know my dad would go to coffee in the mornings at the local coffee shop and they actually called it the brain center and he would laugh, he would say, oh, you know, you can get all your answers at the brain center. And he would joke about that, but I think that goes a long way with what you're saying there, Barry.

Barry Sackett (12:05):

That's right. Yeah, you can go to Hy-Vee or Casey's or wherever all the farmers kind of get together and learn a lot of stuff, but you know, you want somebody looking specifically your situation because everybody is unique.

Jeana Goosmann (12:18):

You bet. So let's shift and talk a little bit about Iowa in particular and how the new tax bill might impact farmers and their retirement income.

Barry Sackett (12:28):

Yeah, some significant changes that will happen in 2023 for Iowa farmers. Those that are retiring from farming but have been actively farming for a period of 10 years and have owned their land for 10 years can avoid any state tax on the income that they're earning from those leases. They need to be leases that they're not participating in. So, not crop share leases, they're kind of still active in the farming operation. There's another part of the Iowa tax structure on farming that has been one way and it's changing a little bit. And that's the capital gains treatment. There's a way to avoid the capital gains tax on selling farmland if you've been a farmer and that's been in place for a long time.

Barry Sackett (13:22):

But you can't do both. You can't take the income from, or avoid the income from the rent and avoid the capital gains in the same year. It's expanded a little bit to include machinery. So, if you've got a full farm operation and you've got a couple million dollars worth of machinery and you're going to sell that, you can avoid some capital gains tax on that as well. So, all those statutes are changing the law in 2023. Sometimes you've got to give the law a couple years to play out before you know how exactly the Department of Revenue is going to handle it. But, if you're at that age (retirement), I would certainly recommend that you get some good advice before you make any sales or sign a lease with somebody if you're going to be getting out of farming in the next year.

Jeana Goosmann (14:11):

Great advice. And I know farmers absolutely love, just like most of Americans not paying any more tax than you have to.

Barry Sackett (14:19):

Yeah. I do tax work and farmers came in and they've had a great year, but they don't like me this year because they generally have to pay some taxes. Of course, the implement dealers they're pretty excited about this year because they can go out and buy a new tractor and pay them instead of Uncle Sam. So, you know it's the nature of farming, farmers feed us. It's a very difficult life. There's a lot of ups and downs and, you know, even a large operation has such dramatic swings and we understand that and certainly have been through it with folks and we're here to help you, help you pass that down to the next generation and help them understand it and help them operate their farming and ranching operations into the next generation. So, I'm very excited to talk to you about this today, Jeana.

Jeana Goosmann (15:13):

Well, thank you Barry, so much for sharing your insight. Have a great day, everyone. Go make it worth it.

Goosmann Law Firm (15:20):

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