Anyone who lives in a rural area knows that farm prices are through the roof right now. For those selling farmland, it’s great news. But many of the farmers I talk to are worried about the high costs. Beyond the simple “It’s too expensive to buy land right now” worries, there are a number of hidden ways that these high farm costs affect farmer’s wallets. This post touches only on a few ways that high farm costs increase legal fees to farmers, whether they’re selling their land or not.
Farmers who are buying or selling land right now are seeing larger numbers all over their settlement statements. Many landowners are choosing to subdivide their land to bring higher prices overall. Smaller parcels mean more abstracts are created, which equates to higher abstracting costs and additional title fees for the same amount of land. Lawyers too, faced with huge sale prices, have to take into account their risk on a given transaction. Liability insurance costs increase as the dollar amount of transactions rises, and farmers are sure to see those increases in their closing fees. The State of Minnesota also charges Deed Tax, which is calculated as a percentage of the sale price. Higher sale prices = higher deed taxes.
Of course there are the capital gains tax issues, as most landowners have a much lower basis in their land than today’s high prices.
And for those who plan to never sell, estate planning is becoming more costly. Many of my clients who own land are seeking ways to pass that land on to the next generation. Because land values are high, these clients, who may not be especially wealthy otherwise, have multi-million dollar estates for which they will likely owe estate taxes to either Minnesota or the federal government. These people, who may have been fine with an expensive will before now must do more elaborate tax planning, which increases the cost of estate planning.
And then when these same landowners pass on, their families face increased costs to settle the estate. Because the estates are valued high enough to possibly be subject to tax, it’s essential that an appraisal be ordered to determine the value of the land at the time of the landowner’s death. Even if the landowner planned ahead to utilize tax savings strategies, the appraisal will be an important part of determining the next generation’s basis in the property.
We do everything we can to keep costs to a minimum for our clients, but it’s important that people realize that additional legal work may be needed, simply because rising land prices have changed the nature of their legal needs.