In a recent Iowa Farm Poll, more than half of landowners indicated they planned to transfer farmland to members of their family. There are a number of ways this can be done, and your long-term plans can have significant impacts on your tenant’s tenure on the land, as well as the sustainability of the property. Below is an introduction to issues that should be considered to help ensure the continued sustainability of the property, while also addressing other estate concerns such as taxes and estate planning. Additional resources can be found below, and again, this information is not legal advice and consultation with a licensed attorney is recommended.
Issues for Your Current Farm Tenant
Possible concerns for your tenant involve their ability to continue farming the land after the transfer, and if so, how will the terms of the lease change. The outcome of these issues will depend on a number of factors.
Is Your Tenant a Family Member That Will Take Ownership?
In many situations, it is a family member that is currently farming the land under a lease. Leasing is a popular way of turning control and eventual ownership over to family members. However, depending on the circumstances, tenure and sustainable farm practices can still be a concern.
If your current tenant is a family member, and they are the only family member to whom you plan to transfer the farm, then tenure security is probably not a pressing concern. As the only landowners your farming family member will likely have the option to continue farming the property. However, you will still need to give consideration to tax consequences and estate planning, which can impact your family member’s ability to retain the property. These issues are discussed further in the resources below. You should also continue to look at conservation provisions for the lease before transfer, and you might also consider agricultural and conservation easements to ensure permanent protection for the land.
In many cases ownership of the farm will be divided between several family members. This results in joint-ownership of the farm and presents additional considerations if one family member is farming the land. While the farming member will probably want to continue farming the property, non-farming members will also want to see some type of income from the property, or they may have other concerns about the farm, such as protecting or enhancing wildlife habitat. This can potentially create divergent interests between the owners. Careful estate planning and discussions with your heirs can be critical to ensuring the continued tenure of the current operator while protecting the interests of other heirs as well.
Your Current Tenant Will Not Take Ownership of the Property
If your tenant will not take ownership of the property, tenure security becomes a greater issue. One way to help ensure continued tenure is to simply enter a long-term lease arrangement. If the transfer, whether it be through inheritance, gift, or sale, takes place during the term of the lease, your successors will take the property subject to the lease. As in any situation involving the transfer of property and estate planning it is recommended to sit down with your family and discuss your plans and potential consequences. Again, you might also consider agricultural and conservation easements to ensure the permanent protection of the land.
The manner in which you transfer land can have a large impact on income and estate taxes and other matters. The Rural Tax Education website has great resources for learning about the tax implications of farmland transfer. More information on farm succession planning can be found at Iowa State University’s Ag Decision Maker – Succession page.