Archive for the ‘Agricultural Law’ Category
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.
The Atlantic magazine recently published a great article about family farms and how they’ve weathered changes on the industry to become hugely successful. This is the type of farming I see in my corner of Minnesota. The farms are all owned by families. While they may have incorporated because some lawyer or accountant said it would be good, the people who actually farm are fathers, mothers, brothers, grandparents…real people who do a really hard physical job really well.
The farms here are vast. It’s not at all uncommon to see an average farmer handling 5000 or more acres by himself or with just a few hired hands. My own Dad and my uncle are just these kinds of farmers, growing corn and soybeans on the fertile land of southeastern Minnesota.
My favorite part of this article may have been the way the author praised farmers for their foresight in supporting good education. That’s precisely the value I see in farming communities around me. Farmers and their families support local schools, sitting on the school boards, attending games, leading youth groups, and encouraging young people. It’s why we see such good education systems in states with a farming background. And it’s why, when my husband was hired as an engineer in a California company, his boss told him, “I’d hire a farm kid any day. Farmers are some of the smartest, most ingenious people you’ll ever meet.” Heck, it’s why my own farmer dad has a daughter with a Harvard law education, another daughter who’s a doctor, and two more well-educated daughters whose families own their own businesses.
Midwesterners sometimes get a bad rap in national magazines as being behind the times or somehow different. It was a refreshing change to read an article praising the business model of the modern family farm.
And with that, I’ll put in my normal plug for farm succession planning. If you are the owner of a successful family farm, you have all the more reason to spend just a bit of time with a lawyer thinking about a fair way to pass that farm on to the next generation in your family. Farmers who have built these incredibly successful, sophisticated businesses deserve to have a good plan in place so they don’t have to worry about what happens when they’re ready to be done farming.
Everyone knows the laws about commercial trucking are complicated. So when you mix ag laws, farmers operating semi-trucks for their own farms, cell phone use, and commercial driver’s licenses, you have an interesting mix of rules and exceptions. Here are a couple things farmers should note:
Minnesota farmers DO NOT need to have a CDL (commercial driver’s license) to operate a farm truck.
This rule applies when the truck is:
- “Operated by the farmer or immediate family member, or an employee of the farmer;
- Used to transport agricultural products, farm machinery, or farm supplies, including hazardous materials to or from a farm;
- Not used in a contract or common carrier operation; and
- Used within 150 miles of the farm.” (Source: Minnesota Department of Transportation)
So the farmers hauling sweet corn, field corn, soybeans, peas, etc, down the road, do not necessarily have a CDL. And as it’s the farmer, relatives or employees driving the truck within 150 miles of the farm, hauling ag products or supplies, farmers can drive those trucks with just a regular driver’s license. Many who haven’t worked on a farm are surprised by this law, but let me assure you: Farmers get A LOT of practice maneuvering those trucks around very large, very expensive equipment in the dark of night over muddy terrain and in poor conditions with tight deadlines. Most of the farmers I’ve met are also some of the best truck drivers I’ve ever met.
Like other truck drivers, farmers can no longer use their cell phones while driving trucks.
A new federal law went into effect this year that restricts commercial truck drivers from using their cell phones while driving. It appears this law applies to farmers who drive a commercial vehicle, even if they don’t have a CDL. If you’re in a truck, you shouldn’t be using your cell phone under the new restrictions. The fines are steep. The driver can be fined $2750 and the company can face fines of $11,000. Certain hands-free mobile devices are still allowed, so if you rely on your phone while trucking, it may be time for you to check out what’s new in hands-free technology.
Did you know that farmers aren’t supposed to bury concrete on their land unless they give legal notice of its location? Most farmers don’t, but the issue of concrete and rebar burial is the subject of a recent Minnesota law change.
Based upon a presentation I listened to yesterday from a Freeborn County Land Use official, it sounds like there is differing opinion on whether farmers should be allowed to bury concrete on their land. Having grown up on a farm and living on one now, I know what happens. Buildings fall down, are taken out of use, or are destroyed in other ways. What’s left is a mess of concrete that needs to be taken care of, and burying the concrete seems like the fastest and easiest method of disposal. I know buried concrete exists on the farm homesite my family recently purchased, and I’ve seen other area farmers burying concrete as well. Minnesota lawmakers apparently agreed that the practice happens and isn’t against the law, because the recent law change presumes that farmers will bury such materials.
If you do bury concrete on your farm property, beware…Minnesota Statute 17.135, Farm Disposal of Solid Waste, puts additional requirements on landowners. You must bury the materials “in a nuisance-free, pollution-free, and aesthetic manner on the land used for farming.” More importantly, however, you’re now required to record an affidavit within 90 days of the burial. The affidavit should provide the legal description of the property, certify that you’ve complied with all applicable laws and regulations, and identify by map the location of the buried materials. The purpose, I suppose, it to give potential future owners of the property some notice that concrete lurks beneath the topsoil.
It currently costs $46 to record a document at your county office, so there is a fee for this reporting requirement. Interestingly, however, the state law does not provide a penalty for failure to record the affidavit. Some counties do have zoning ordinances or planning requirements that provide penalties for failure to comply. I also wouldn’t be surprised if purchase agreements are not modified in some way in the future to require disclosure of known concrete burial. And of course, the state law could always change to include a penalty for failure to record the affidavit. So in the meantime…keep in mind that you’re supposed to record the burial of concrete and rebar.
Farming involves a lot of tough decisions and specialized knowledge. Farmers have to know when to hurry to the field in the middle of the night because a big storm is coming at 6:00 am and the whole chemical application schedule will be thrown off by missing these next 12 hours. Or when to market their livestock or commodities. Or how best to prepare the fields, prevent animal diseases, haul grain, or protect growing livestock. With all these decisions to make on a daily basis, it’s no wonder that many farmers put off planning for the future.
Of course you know, though, that a plan is essential, especially when it comes to farm succession planning. Questions of fairness are personal and difficult to discuss in a family business. These are the kinds of questions your lawyer will prompt you to consider when you start making your plans.
I recently ran across an excellent summary of how to start thinking about farm succession planning: Succession Planning and the Family Farm. The authors make some excellent points:
- According to the USDA, approximately 96 percent of the 2.2 million farms are classified as “family farms. The average age of a farm operator is 57 and the fastest growing segment is those over age 65. These ages suggest the need for planning for transitioning due to death, disability or retirement.
- At time of transition, two options (1) maintain the operation while transitioning ownership to a son or daughter; or (2) shut down the farming operation and sell or lease the land. Most would prefer to transition to family. To make this transition more successful, farmers should identify and train potential successors early and determine
what they will need to know and do to qualify as a successor. Although farmers would prefer to retire when they choose, the plan should include all scenarios and consider the financial needs for both the farm operation and the succeeding children in each scenario. Some options would include lifetime purchase, an inheritance, a purchase from the estate, or a long term lease. Financial needs might include financing from a bank, parent financing, disability and/or life insurance. Starting early will increase the liklihood of insurability and affordability.
- Dividing the farm among all children is not always the best idea. It might be better to gift other money or items to non-farming children. Life insurance can benefit your planning by providing a source of funds to for non-farming children to inherit.
- Start talking to your children early about what the plan is and make sure everyone is in agreement. Revise the plan when necessary and continue to communicate.
- Your attorney, accountant, financial planner and insurance professional should all be involved in the planning. In addition a business coach or planner can be helpful in this process. The failure to plan can cause financial problems for all involved and can even result in forced sale of land to pay for taxes or other debt, proper planning will allow the farm to endure while caring for the needs of both generations.
The whole article is worth a read. And if you haven’t done any succession planning yet, please do so now, whether you are retired, nearing retirement or in the middle of your farming years, there is no better time than now. The sooner you begin your planning, the more options you will have to successfully transition your farm.
Working on the farm is a tradition for farm families. I picked rocks with my parents and the rest of my family from as early as I can remember. When we were very young, we used to sit on the back of the wagon when we got tired, kicking the wagon wheels when no one was looking.
As I got older, I graduated to driver. That meant that I got to drive the tractor and wagon forward and then hop off and pick with everyone else until it was time to pull forward again. My favorite part, though, was switching all the tractors between fields, when we could get the tractors up to top gear and drive full speed (not all that very fast in an old tractor) down the gravel roads. It was a fun bit of freedom, but it was important work. Without our help, my dad would have spent hours shuttling our wagons and tractors between fields by himself.
My parents and uncle always paid us for our work on the farm, and we worked hard. We started each day before 7 am and worked alongside the adults. When it came time to go to college, each of us had a small nest egg that helped us pay for some of our computers, books, room, and tuition. And today, we are all hardworking adults. Between the four of us, my sisters and I own our own businesses, working as doctors, lawyers, and marketing professionals, while managing growing families. Several of us are employed in agri-business. I work with farmers in my law practice. And my parents and the rest of us run a family farm winery, Four Daughters Vineyard and Winery. We work those same long hours, actually getting our hands dirty in the fields, and we are thankful for the strong ethics our farming background instilled in us.
Which brings me to my point…we were able to learn those skills because regulations allowed farm kids to work on their family’s farms for pay. Farm labor laws currently exempt young farm workers from Department of Labor standards if they’re working on their own family’s farm. A proposed change in that law would prohibit farm kids under 16 from operating most machinery or working with livestock. The stated goal is to protect kids from dangerous conditions on the farm, but the change would only affect hired farm workers. In effect, farm families would be prohibited from paying teens under age 16 for their work on the farm…or those paid farm kids would be prohibited from assisting with many jobs they’ve historically done. This USA Today article describes some of the changes.
Some legislators who grew up on farms understand that kids learn great work ethics and earn good money working on their family farms. Legislation is underway calling on the DOL to withdraw its proposal.
Farm families should watch this legislation and the proposed changes closely. If it passes, it could mean serious changes in the way that families conduct their farm business.
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.
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.