0:01

Do complex legal issues hold

0:03

you back. Let's get energized

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and bring clarity to your top

0:07

legal questions. This

0:10

is Law Talk with the Flock by

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Goosmann Law Firm.

0:30

Hello, I'm your host, Jeana Goosmann, a

0:33

CEO lawyer, author and w oman business

0:35

owner here to help navigate you through the

0:37

law, your business and life as a

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leader. For today's episode,

0:42

I have with me my partner, the

0:44

managing partner of T rust L aw C ouncil, B

0:47

arry S ackett. B arry is our Trust Law

0:49

Counsel leader here at Goosmann Law Firm,

0:51

and his main office is in Sioux Falls, South

0:53

Dakota. T oday w e're going to t alk a

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bout t he i ns a nd o uts o f succession planning for

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f armers i n ranchers. Welcome B

1:00

arry.

1:01

Thanks, Jeana. Really excited to be here.

1:04

Barry, if you could just tell our

1:06

listeners a little bit about yourself.

1:09

Yeah, as you said

1:11

, I currently sit in Sioux Falls, but

1:13

grew up in northwest Iowa. I

1:15

practiced with my, my

1:17

father and my grandfather i n a firm

1:20

that started 1918. I

1:22

have a lot of farmer and

1:24

rancher clients throughout the

1:27

years. B oth in production

1:30

and processing a nd transportation

1:32

and feed, and kind of the whole gamut

1:35

of the agricultural space. Our

1:37

T rust Law Counsel has a lot o f those

1:39

clients throughout the Midwest, i

1:42

n Nebraska, South Dakota, Iowa,

1:43

Minnesota, an d we do

1:46

a lot of work in that area. We really

1:49

focus on those folks that are

1:51

looking at keeping their

1:54

farming operations in their family or

1:56

passing them on and putting them into good hands.

1:58

We understand the, the

2:00

value that our clients place in

2:03

the land that they've spent so, so

2:05

much of their lives, an d g enerations on.

2:08

As a farmer's daughter, myself, I can tell

2:10

you that my dad put a lot of stock

2:12

in ground, he just liked an

2:14

asset that you could go out and kick if you wanted

2:17

to .

2:19

That's right, my family i

2:21

s going o n t o our second and third

2:23

generation of, of farm ground as well.

2:25

So, we're very, very much in touch

2:27

with that feeling.

2:29

So Barry, you mentioned Trust Law Counsel, tell

2:31

us about your team and what the team at Trust Law Counsel looks like

2:35

today.

2:37

Well, our team is made up of estate

2:39

planning attorneys and then specialists in certain

2:42

areas. We are fortunate that

2:45

we're sitting in Sioux Falls, South Dakota, and we,

2:47

we have what we call the South Dakota Advantage.

2:50

The trust laws and the trust industry

2:52

in South Dakota is very well developed

2:54

and really leads the nation and

2:57

in some ways leads the world and how we

3:00

handle generational wealth . Both for

3:03

protection of assets and secrecy

3:04

of certain aspects of

3:09

how things happen. But mainly we've

3:11

got very talented professionals that

3:14

know how to keep assets together and

3:16

manage them, protect them and

3:19

we're able to offer those services in the other

3:21

states that we work in, in both Minnesota,

3:23

Iowa , Nebraska, and

3:25

really around the country. We've got clients

3:28

from all over. So we've

3:30

also got a very strong back r oom, a

3:33

s far as administrating to t rust and working

3:37

through probate for our clients that

3:39

get in that situation. We've got

3:42

attorneys and and support staff

3:45

in a ll four of our offices in Spirit Lake,

3:48

Si oux Falls, Sioux City, and Omaha.

3:50

Outstanding. So let's

3:52

focus in a little bit more on farmers

3:54

and ranchers and what are some specific

3:57

options that they should consider

3:59

in their succession plan?

4:02

Well, you know, those options

4:04

have changed a lot over the years as the

4:07

estate planning exemptions have changed as

4:11

some state laws have changed. The

4:14

size of, of your operation makes a difference

4:16

about what things we might look at. But

4:18

generally creating a trust

4:24

for a family that

4:27

owns ground and wants

4:29

to make sure that that ground stays in

4:31

the family for the next generation with enough

4:34

flexibility that if some

4:37

of the next generation want a farm and

4:39

some don't, or if some want

4:42

to own ground and some don't, that we've got that

4:44

ability to still hang onto the land. Luckily a

4:47

lot of farmland and ranch

4:50

land is without a lot of debt

4:52

against it. So that gives us options. And then,

4:55

you know, also looking at how that land is

4:57

managed and make sure that the trustee

5:00

has the ability to hire the

5:03

right tenants for the ground and to keep

5:05

that productive for generations

5:08

to come.

5:09

Great. And I always think if you know,

5:11

you're a farmer and you're wondering why does your neighbor own

5:14

their ground in a trust, that's a

5:16

great opportunity to give you a call and find

5:18

out why.

5:19

That's exactly

5:21

right. I think if you pull out your plat book and you

5:23

look around you , most farmers

5:26

will find out that , a majority of the

5:28

ground around them is held in

5:30

trust. The reasons

5:32

that I just mentioned certainly there's

5:35

tax , both income tax

5:37

considerations to make on, on how things are

5:39

taxed currently, but certainly

5:42

, as the, the prices

5:44

of farm ground continues

5:46

to rise to astronomical levels, many

5:49

more people are looking at estate tax , considerations

5:52

when they're looking at their holdings and how do they

5:54

avoid that and make sure that the land can

5:56

get into the next generation without having

5:59

to pay a lot of tax.

6:00

And at a fundamental level, if it's

6:02

held inside of a trust, you can avoid probate

6:04

when the owner passes away and keep it

6:07

out of the court system and tied up for

6:09

a year and a half.

6:10

That's right. If you can

6:12

avoid probate that gives you obviously

6:15

more ability to manage that ground

6:17

as you're going through the family transitions,

6:20

but it also creates a large

6:22

amount of privacy as far as how

6:24

things are held and you know, if there's issues

6:26

within your family, those things don't need

6:29

to be , aired in public and can be handled

6:31

by the trustee.

6:32

You mentioned secrecy, and I think that

6:35

is attractive to a lot of farm families.

6:37

I know in my personal family and

6:40

my grandparents, you know , who

6:43

owned what and what was valuable. Some

6:46

people really like and value secrecy.

6:48

Can you touch upon that a little bit more, Barry?

6:51

Well, it's funny you say that. You know, I have clients

6:53

that live a section apart

6:55

and don't know anything about the

6:57

, the farmer on the next section. It could

6:59

be very isolated, but, you

7:02

know, the other thing is that there's a

7:04

lot that happens within a farm family in the generations. And part

7:08

of that history is family lore. It's not

7:10

public lore. And it's

7:13

important to remain

7:15

harmony, certainly in-laws

7:18

and spouses can get

7:20

involved when things are public. That doesn't

7:23

help the situation as far as farming family harmony.

7:26

And so we can create , ability

7:29

to have, as I I often

7:31

say, cooler heads, manage the property

7:33

and not have everybody involved in it.

7:35

Let's shift over a little bit and talk about

7:38

10 31 exchange and how might that

7:40

be a benefit?

7:42

Well, most farm ground that

7:44

is in Iowa hasn't changed hands.

7:46

And when I say most probably 80%

7:48

of it hasn't changed hands in the last 20 years,

7:51

which means that the basis, the

7:53

value of that land in the, in the owner's

7:55

hands is what that

7:58

land was worth 20 years ago. So

8:01

on the whole less than a thousand dollars an acre,

8:03

and now we're seeing, you know, 25

8:06

to $30,000 an acre . So

8:08

that gain is going to be

8:10

taxable if it's sold during

8:12

someone's lifetime. So we

8:15

have a number of clients, for example, that

8:17

have farm ground that border Sioux

8:20

Falls or Omaha or Sioux City that

8:22

turns into development land and

8:24

often they're able to do a 10

8:26

31 exchange, which basically means you don't

8:29

get the cash from the sale, but you utilize

8:31

that cash to buy more like

8:33

ground. So if

8:36

it's a 80 acres of development ground

8:38

that's adjacent to Omaha

8:40

and we're able to get $50,000 an acre

8:43

for it, we can go out and buy

8:45

five times as much land at $10,000

8:47

an acre out in Nebraska.

8:50

And so often that's a way to

8:52

certainly benefit the

8:55

next generation by having that kind of productive

8:57

farm ground both in the

8:59

income that it generates,

9:02

but then also the appreciation as your

9:06

family's building wealth.

9:09

Barry , let's check on the situation

9:11

that does come up quite a bit where

9:13

somebody inherits some farm ground, but they

9:16

don't actually want to work the farm and be the

9:18

farmer. What do you recommend for those folks?

9:21

Well, you know there's certainly farm

9:24

managers out there and some national farm

9:27

managers that would take over the

9:29

ground. Often that comes

9:31

with a price. Another

9:34

way certainly to do it is to create a trust

9:36

and have a trustee.

9:39

And I've got clients that manage

9:41

a lot of ground for others, and

9:43

that can be a negotiation. So if you've got a relation

9:46

there that makes that easier. And

9:48

then, you know, another way to do it is to

9:51

kind of do it yourself, but have a good farm

9:52

tenant. The relationship

9:56

between farm tenants and landlords

9:58

is very important. You want somebody

10:01

that cares about your land and is certainly

10:03

maintaining it. It's a partnership. Improvements

10:06

need to be made in titling and other things

10:09

that needs to be a joint effort.

10:11

But you know, we've been

10:13

very successful in setting up good

10:16

lease arrangements so as

10:19

prices rise both parties benefit

10:22

and those leases can be very important for

10:25

tax purposes and other things as

10:27

you're getting into them. And we can talk maybe a

10:29

little bit about that as well.

10:32

You bet . So when you're looking at all these

10:34

different options, there's a lot that goes

10:36

into it, and I think having people that

10:38

have this knowledge about farms

10:41

and how to do succession planning it

10:43

really is a unique area of

10:45

estate planning. Would you agree?

10:48

I would. You know and the other thing that

10:50

I get a lot of clients that come in and they've

10:52

had a banker tell them what to do, or they've

10:54

got a crop

10:57

insurance agent telling them what to do or

10:59

they've got a neighbor telling them what to do.

11:01

There's a lot of information out there,

11:03

there's a lot of things that owning your ground

11:06

and certainly passing your ground into

11:08

the next generation touch. So,

11:13

we're in this business and we see it every

11:15

day . We certainly rely

11:17

on a lot of partners in the industry, but guess

11:22

I just want to give a

11:24

warning to people that it is

11:28

a complex matter and somebody

11:31

with one piece of advice might not be the

11:33

whole picture that you need to look at when

11:35

you're seeing how these things happen

11:37

, because the plan

11:39

that you make isn't gonna happen right away. It's

11:42

going to happen maybe 10 years down the

11:44

line. So you really need to understand what's

11:46

gonna be different in 10 years.

11:48

That's a really good point. I know my

11:50

dad would go to coffee in the mornings at the local

11:52

coffee shop and they actually

11:55

called it the brain center and he

11:57

would laugh, he would say, oh, you know, you can get

11:59

all your answers at the brain center. And he would joke

12:01

about that, but I think that goes a long

12:03

way with what you're saying there, Barry.

12:05

That's right. Yeah, you can go to Hy-Vee or

12:07

Casey's or wherever all the farmers kind

12:09

of get together and learn a lot of stuff, but you

12:13

know, you want somebody looking specifically your

12:16

situation because everybody is unique.

12:18

You bet. So let's

12:20

shift and talk a little bit about Iowa in

12:22

particular and how the new tax bill

12:25

might impact farmers and their retirement

12:27

income.

12:28

Yeah, some significant

12:30

changes that will

12:32

happen in 2023 for Iowa farmers.

12:34

Those that are retiring from

12:37

farming but have been actively farming

12:39

for a period of 10 years

12:41

and have owned their land for 10 years can

12:44

avoid any state tax on

12:46

the income that they're earning from those leases.

12:48

They need to be leases that they're

12:52

not participating in. So, not

12:54

crop share l eases, they're kind of still active

12:57

in the farming operation. There's another

13:00

part of

13:03

the Iowa

13:05

tax structure on farming that

13:08

has been one way and it's changing a little bit.

13:12

And that's the capital gains treatment.

13:14

There's a way to avoid the capital

13:16

gains tax on selling farmland

13:19

if you've been a farmer and that's been in

13:21

place for a long time. But you can't

13:23

do both. You can't take the income from

13:25

, or avoid the income from the rent and

13:28

avoid the capital gains in the

13:30

same year. It's expanded

13:32

a little bit to include machinery. So, if

13:35

you've got a full farm operation and you've

13:37

got a couple million dollars worth of machinery and you're

13:39

gonna sell that, you can avoid some capital

13:41

gains tax on that as well. So,

13:44

all those statutes

13:47

are changing the law in 2023. Sometimes

13:51

you've got to give the law a couple years to

13:53

play out before you know how exactly the

13:55

Department of Revenue is going to handle it. But , if

13:58

you're at that age (retirement), I would certainly

14:00

recommend that you get some good advice before

14:03

you make any sales or sign

14:06

a lease with somebody if you're going to be getting out

14:09

of farming in the next year.

14:11

Great advice. And I know farmers absolutely

14:14

love, just like most of Americans not

14:16

paying any more tax than you have to.

14:19

Yeah. I

14:21

do tax work and farmers came in

14:23

and they've had a great year, but they don't like me

14:25

this year because they generally have to

14:27

pay some taxes. Of course, the implement dealers

14:30

they're pretty excited about this year because they

14:32

can go out and buy a new tractor and pay them

14:35

instead of Uncle Sam. So , you

14:38

know it's the nature

14:40

of farming, farmers feed

14:43

us. It's a very difficult

14:45

life. There's a lot of ups

14:47

and downs and, you know, even a large operation

14:50

has such dramatic swings

14:52

and we understand that and certainly

14:55

have been through it with folks and we're

14:57

here to help you, help

14:59

you pass that down to the next generation and help

15:01

them understand it and help them operate their

15:04

farming and ranching

15:07

operations into the next generation. So, I'm very

15:11

excited to talk to you about this t oday, Jeana.

15:13

Well, thank you Barry, so much for sharing your

15:15

insight. Have a great day, everyone. Go

15:17

make it worth it.

15:20

Thanks for joining us for Law Talk

15:22

with the Flock by Goosmann Law Firm. We

15:25

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