Archive for 2011
I was talking with a local banker yesterday who has been through several up and down cycles in farm lending and ag land. My question to him was, “Do you think this is a bubble? Are prices going to crash at some point?” That seems to be the question of the hour in the news media. Housing prices continue to fall while farm land prices are rising faster than anyone can believe. Of course, he didn’t know the answer.
Our area is awash with stories of recent rent and land auctions where the land rents or sells outright for prices previously unheard of in this area. MPR reports that farm land is selling at prices that may make it difficult for farmers to turn a profit, even with record prices for corn and soybeans in recent years. I spoke with a local farmer recently, and asked him if he was in the market for more land. Even though he has potentially 15-20 years of farming in his future, he replied, “I’m not sure I’ll be farming long enough to pay back a loan at today’s land prices.”
The banker I spoke with described conditions in farming during the 70s and 80s that led to a historic farm crisis. When banks called in their loans at that time, attorneys assisted farmers with negotiating principle reduction plans or farmland swaps (give us X amount of land and we’ll leave the rest of your farm alone). We have seen today’s bankers involved in the current housing crisis extremely reluctant to participate in any sort of principle reduction. How likely would ag lenders be willing to do the same on today’s large loans if the market dropped? Recounting yearly crop yields and weather conditions, the banker went on to tell me that rising yields and prices, combined with nearly 20 years without a total crop failure in Southeastern Minnesota, have left many local farmers in good shape.
Farming has a lot of variables, many of which cannot be controlled in any reasonable way (weather?). Let’s hope those factors continue to be favorable to strong profits, so farms can keep up with rising land prices.
The New York Times reports that pig thefts are on the rise in the Midwest, especially in Minnesota and Iowa. If you’ve ever seen a hog finishing barn, you know that many large pigs live together in long housing facilities. These barns are often located away from towns, main roads, and even the farmers themselves. There are all sorts of laws about hogs, not only animal care laws, but real estate issues as well. For example, depending upon when the farmer put his barn there and how he operates the ag facility, he may or may not be liable to his neighbor for a nuisance claim arising out of the smell that naturally accompanies pigs. Or the farmer may be protected by Minnesota’s Right to Farm statute, which states that agricultural operations shall not be considered a nuisance if they meet certain criteria. Counties may even require neighbors of hog farms to sign and record an agreement indicating they know they live in an agricultural area and agree that it has smells and sounds that naturally accompany that line of work.
All of these laws have culminated to keep hog farms away from people, which means they may have inadvertently become a prime target for thieves. Hog prices are high right now. Corn prices are also high. So it’s relatively expensive to feed and grow a hog to market weight. But a thief who steals a fully -grown hog may have just found himself a tidy profit. One farmer, for example, estimated his losses at $30,000. Because non-farmers who move to the country often want peace and serenity, they can be surprised at the sounds and smells of agriculture. Farmers have responded by making their barns more automated, locating them on gravel roads, and keeping them out of yards and housing areas. Responsible farming that keeps neighbors happy. Consequently though, there are fewer watchful eyes to protect the farmer’s work.
I imagine farmers will be watching more carefully. As rural neighbors, I hope we can do the same.
As always, farmers and the law are in the news this week.
Lawmakers are debating a Farm Bill. This article in Ag Week discusses one legislator’s views on the direction the country might take with a new Farm Bill.
The Eagle Tribune reports a pig farmer in Massachusetts is fighting a recent decision to disallow his proposed piggery. Law protecting the right to farm vary across the country. Here in Minnesota, there have been many attempts to protect animal farmers from nuisance claims, including the Right to Farm Law in Statute 561.19. In many cases, though, these laws protect existing operations from new neighbors disturbed by oderrific conditions, not new operations.
South Dakota is considering cutting taxes on wind farm development, in order to better compete with neighboring states. Minnesota is home to many wind farms, and many landowners, farmers, and retired farmers appreciate the opportunity to earn a little extra money each year from their windmills. These contracts are often long-term, run with the land (that means your heirs will be bound by the terms of the contract), and heavily weighted toward protecting the developer and not the farmer. A gentle reminder: if you are considering signing a windmill contract, bring the easement and other documentation to your attorney to be sure you understand exactly what you’re signing. Too many times, clients have brought in already signed and recorded windmill easements and were disappointed to discover the terms were not very favorable to their wishes.
Here is a sampling of Minnesota agriculture in the news:
Drier Weather Allows Farmers to Catch Up on Planting. http://www.postbulletin.com/news/stories/display.php?id=1457616
Local Author Writes to Preserve memories of Farm Life. http://www.agrinews.com/local/author/writes/to/preserve/memories/of/farm/life/story-3644.html
Pesticide Residue Taint 98 Percent of Apples. http://www.foxnews.com/health/2011/06/13/pesticide-residues-found-in-8-percent-us-apples/
I had the opportunity to attend the annual Probate and Trust Institute in St. Paul, Minnesota, yesterday. It was well done, and I’m always grateful for the chance to speak with other wills, estate planning and probate attorneys. I attended sessions on the state of federal and Minnesota estate tax, generation skipping tax, planning for social security, IRS Form 706 for estate tax returns, and dealing with creditor claims in insolvent estates.
One thing that always strikes me though is that many attorneys from the Twin Cities metro area have a hard time relating to the legal issues rural Minnesotans face. At one point in a seminar, someone pointed out an issue that relates to farms and then noted that “we” won’t have to deal with that. And I can’t count how many times I heard the word “outstate” yesterday. That word always makes me pause, wondering whether the metro area really is “in-state” and all of the rest of us are just out here somewhere unimportant. In my experience as a practitioner and a rural citizen, rural residents don’t think they live out of somewhere else. We live here. And here is a pretty great place.
So my advice today? Consider whether your lawyer understands the issues you face as a farmer, a rural business owner, a small town resident. My law office on the border of rural Mower, Fillmore, and Olmsted counties practices big city law with small town values. Just recently I was told, “I can’t believe there’s a Harvard lawyer in Grand Meadow.” Well, why shouldn’t there be? I think we rural citizens deserve world-class service, and I’m happy to be a part of that goal. I hope to see you in my office soon!
A recent article about a proposal in Colorado caught my eye. Lawmakers there are proposing that farm youths be allowed to obtain a driver’s license at age 14 1/2. The goal is to allow younger people to help out with the driving to and from farm properties. Let’s face it. We all know that farm kids are driving early, and this program helps to legalize a skill that many of these youths already possess.
We have something similar here in Minnesota for teens ages 15 and up. The Farm Work Driver’s License allows drivers under age 21 to apply for a special permit to drive for farm purposes. The benefit to the farm work license is that children can obtain the permit before passing the road skills test. Farm teens must pass a written test, take behind-the-wheel training, and show proof that the family is engaged in farming (land deed or rental contract). There are specific rules about where and when farm kids can drive, but the end result –another licensed driver– is pretty handy for farm families during busy times on the farm.
My sisters and I got our farm permits when we turned 15. And you can bet that my family needed our help transferring vehicles between fields, giving rides, and delivering meals and supplies.
Many people form corporations because they heard that it’s important. It will protect you from liability… It will make your tax situation better… There are a lot of reasons your lawyer, your accountant, or even your friends might recommend that you incorporate or form an LLC. Liability protection is one of the main reasons I encourage my clients to formalize their business entity structure.
But having an LLC, a C-corp, or an S-corp is not a magic cloak that protects you from liability. If you don’t follow corporate formalities as the owner, someone suing you could potentially attack your personal assets as well. There are many reasons a court might decide to “pierce the corporate veil” to allow someone to sue the owner individually. Maybe you didn’t keep minutes, maybe you used the company assets like they were your own, or maybe your business was bankrupt from the start.
If you haven’t already done so, consider consulting a lawyer to ensure that you are following proper corporate formalities. It would be a shame to go to all the work and expense of creating and maintaining a corporation, only to be personally liable because you failed to follow some important step of keeping your corporation and personal lives separate. A good attorney can help you analyze your own circumstances and help to limit your liability.
SHAWN VOGT SWEEN SELECTED AS ONE OF MINNESOTA’S “UP & COMING ATTORNEYS”
MINNEAPOLIS, MN – April 22, 2011. It has been announced that Shawn Vogt Sween has been recognized by Minnesota Lawyer as a 2011 “Up and Coming Attorney.” In its eleventh year, this award identifies those Minnesota attorneys who have distinguished themselves during their first ten years of practice. Criteria for selection include leadership, professional accomplishment and service to the legal community. The 25 honorees were chosen by Minnesota Lawyer‘s editorial staff based on nominations from law firms, legal associations, previous award recipients and other members of the state bar.
This year’s Up & Coming Attorneys will be featured in a special section in Minnesota Lawyer in May and during an awards luncheon on May 11, 2011, in downtown Minneapolis.
Shawn brings her unique experiences and expertise to her one of a kind Minnesota law firm. She has spent time at both the USDA and SBA offices in Washington D.C., where she worked with the national rural development partnership. She now works with clients ranging from farmers to rural business owners.
She’s actively involved in her community and with her local school district. She’s currently serving as an advisor to the local Family, Career & Community Leaders of America (FCCLA) student organization and is also actively involved with the elementary school where she volunteers in classrooms and her community’s upcoming sesquicentennial event planning committee. She lives in Grand Meadow, Minnesota with her husband and four children.
She received her J.D. from Harvard Law School and her B.A. from Hamline University.
ABOUT THE LAW OFFICE OF SHAWN VOGT SWEEN, LLC
The Law Office of Shawn Vogt Sween, LLC, serves farmers, rural businesses, community banks, and rural citizens. Its main fields of practice involve real estate, estate planning and probate, and business law with an emphasis on agricultural and rural law. The Law Office of Shawn Vogt Sween, LLC, offers the best of both worlds to Minnesota residents: a Harvard-educated lawyer with a small-town upbringing and a background in agricultural and rural development. For more information, visit www.svslawoffice.com
At a time when many farm families are struggling, it’s encouraging to hear good news about farm profits. The Star Tribune recently reported that “Agriculture rebounded sharply in Minnesota, but gains weren’t evenly spread.” Although not all farmers reported higher earnings, a number of farmers saw their earnings increase in 2010 thanks to a good growing year compared to 2009’s difficult growing conditions.
As you begin the 2011 planting season and hope for another good year, consider protecting your family by putting together a good estate plan or farm transition plan. You’ll never be sorry to have done some advance business and estate planning. I see far too many people in my practice who own land – extremely valuable land – and have failed to plan for what will happen with that farm as the years go by. Consider consulting an attorney if you haven’t taken this important step yet.
If you sell land at today’s high land prices, you might face some large capital gains taxes. If you know that you want to purchase more land though, the US government has provided a way to help you defer those taxes.
The IRS outlines its 1031 Deferred Like-Kind Exchange in this fact sheet. The rules are complex, and I’m not going to get into them in this post. Instead, I want to talk about advance planning, because if you miss this one important step, you may not ever get the chance to even attempt a 1031 transfer.
1. Talk to your accountant. Your accountant should be able to help you understand what a like kind exchange is and how it may affect your tax situation. Only your accountant knows your complete tax history, so your accountant is the best suited to help you determine whether it would be in your best interest to attempt to defer capital gains taxes or if the situation is ripe for you to pay the taxes in the current year. Deferred taxes always sound good, right? Well, there may be situations where it would be better to take the gain now. For example, long-term capital gains tax rates are pretty low right now. Or if you have capital losses, maybe you want to offset those with a gain on the land sale and get the cash in your pocket. Only your accountant can help you decide.
2. Talk to your lawyer. 1031 exchanges require you to follow specific steps in order to qualify, and these steps are very different from the normal land sale. There are time windows, deadlines, requirements of what and when to purchase, closing requirements, and rules about constructive or actual receipt of proceeds from the sale (you and your attorney shouldn’t ever have access to the money, by the way). Most closings do not involve 1031 exchanges, so your lawyer can’t help you with one if you don’t mention it.
3. Talk to your real estate agent. Specific language should be inserted in your purchase agreement. Make sure your real estate agent knows that you’re looking to conduct a like-kind exchange. If you already have a purchase agreement, you may consider amending it to add the 1031 language. 1031 exchanges are sophisticated business deals. I’d recommend against trying to do-it-yourself on this transaction.
4. Find a qualified 3rd party intermediary. Remember when I said you and your lawyer shouldn’t ever have access to the money? That’s why you need a third party intermediary. One of the big companies in the industry is Starker Services. I don’t have any relationship with them, but I know they will answer questions over the phone for landowners, investors, and anyone else looking for 1031 information.
5. Don’t close the sale until you have everything set up. The closing is basically the end of your sale. Closing agents are required to report sales to the IRS, and they will ask you to sign a form indicating that they have your correct social security number to report your sale price. This is a clue for you…if you are advised that the sale will be reported for tax purposes and you don’t yet have the 1031 process underway, your closing agent likely doesn’t know that you are considering a 1031 exchange. If you close (sign documents and exchange money) before you have your 1031 exchange set up, you could be disqualified from making the exchange.
6. Act quickly. There are tight deadlines written into the statute. Make sure you understand them before you start the process.
My most important advice: Set up a good team of people to help you with your exchange. You’ll need an accountant, a realtor, a lawyer, and a third party intermediary. Make sure each of these professionals are involved from the beginning so that you don’t miss any steps. And most importantly, make sure that you tell your team members that you want to exchange like-kind property through a 1031 exchange. While 1031 exchanges happen frequently, they are not the norm in many areas, so your team needs to know you’re planning one so they can best advise you.