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If you inherit property with your brothers and sisters, you just got thrown in to business together with no business plan, no body in charge and perhaps, wildly different goals for the business. This form of ownership is called:

  • Tenancy in Common – , in which the two or more parties own an undivided fractional interest in the property, but when one of the “tenants in common” dies, that person’s fractional interest passes via probate (with or without a will) to the dead tenant’s heirs. This allows for a “step up” in the tax basis of the property for capital gains purposes, and can be used to bring in the next generation as a co-owner with the surviving spouse.

That’s why it gets complicated. Corn or beans. Hay ? CRP? Sunflowers? Multiple owners have multiple biases, goals and desires. If a co owner is deep in debt, they are motivated to maximize revenue while a well off co owner might consider things like land conservation, long term development potential or other agenda items that will bring conflict to the front burner.

Iowa law says people in these situations have the right to get paid from a cotenant who is in control of the property, their respective shares of the “rental value” of the property. Easy to figure when one co tenant got a rent check, not so easy when that co tenant is farming the ground.

The Iowa Supreme Court has pointed out that lease of executed by one tenant in common Is not binding on other tenants in common unless they okay it, like cashing a rent check.

In a case out of Clayton County:

The tenant had 85 acres of farmland owned Strawberry with a written lease that had automatically renewed each year . The tenant was terminated timely by the city. The tenant complained about how he was terminated (by the city clerk and not the council) but court found that the clerk followed the law and didn't need a separate vote of the council to terminate.

The tenant also took issue with him being barred from harvesting cornstalks following termination but the written lease clearly prohibited him from doing so, even though in a prior year he had made bales.

The tenant's only successful argument was that he was entitled to some prorated credit for lime application. A written amendment to the parties' lease provided that lime and trace materials were to be allocated over 7 years and that "if the Lease [was] not renewed," the tenant was to be reimbursed by the landlord "to the extent Tenant has not received the benefits, on a pro rata basis." The lime application was two years in when the lease was terminated. Strawberry Point unsuccessfully tried to say the lime was not an authorized expense, but because lime was primarily a tenant benefit, the city didn't have to authorize it. Just like it doesn't have to authorize herbicide.

It is clear that if this had been a handshake deal between two parties, it would have been even messier to determine who is entitled to what. As to the lease, I would think three years would be better fit for lime depletion, not seven. Consider the next level of argument, unless it is clearly spelled out in the lease, the lime proration can be determined based on uptake, cost of application, cost of product or some other method. As to the uptake, I have spoken to six different labs over the years and have gotten six different uptake rates (while similar, are still slightly variable) for minerals. Consider also how uptake would be determined, as unless a grid sample is used, data drawn at the beginning of the lease and at the end may not be really be comparing data points at all.

One Horse is all it takes.

This month, the Iowa Court of appeals ruled that one 38 year old nag horse was all that is required to create a farm tenancy. For those who rent out farm acreages, this is a big development. A farm tenancy needs to be terminated timely and appropriately by 1 September, while a residential lease can be terminated at various times. Until 2013, this would have not been a concern as at all. Unfortunately, the legislature changed the law in 2013 , removing exception from the 1 September rule for less than 40 acres unless animal feeding was the primary purpose. (read that to mean hog buildings built on leased ground). One horse is not an animal feeding operation, so 1 September is the date to keep in mind. I would think the legislature would adjust this as even the court thought "it may seem absurd to deem this tenancy a farm tenancy," but left with the black letter of the law, they really had no choice.

Lease Rates

According to Iowa State, farm rental rates slid 6.5% but that slide is not as fast as the crop cash prices. Unless a rally happens in the fall, expect tenants to be looking at their bottom lines and trying to find the best value for their rental dollars.  

By 2022 (which isn't really all that far away), drones or UAVs(unmanned aerial vehicles) sales could be up to $3.69 billion dollars. That is over a 700% increase from the current level of sales. It isn't just the farmers who grew up playing ATARI and Intellivision game systems driving the demand. As consumers demand beginning to end visibility of their food, drones will be position to provide the on demand information that consumers are growing accustomed to in all areas of their life. Farm operators benefit too. The operation can more efficiently apply time and resources to the growing product where it yields the most return. By targeting inputs in accordance with the uptake demands of any one region of a field, over application or under application of inputs is reduced.

As better sensors, camera and data gathering information tools become available, the desire and demand to acquire the data will increase. Site selection Concerns As markets continue to be volatile, on farm grain storage becomes more attractive all the time. Farm operators have a tendency to attempt to do things themselves to the extent possible to save on costs. Site selection for a new storage facilty is often driven by where the ground is available, ease of unloading and distance from other facilities. Some addition factors that should also be considered include soil suitability. Traditionally, farm building sites where placed on the poorest ground to maximize the productivity of the purchase.

However, the soil that isn't fit for farming may also may not be fit for storage either. As the grain bins become larger, the chance for soil settling after the grain bin is erected and fill increase. As most farm customers dictate where the grain bin may be located, they may have no body to blame but themselves when the walls come tumbling down on a shinny new facilty that couldn't bear the weight. Further, electrical servc ie can be denied if certain clearnces from existing power lines are not observed. The solution is to get a professional who will determine if the site you think work really does. For the soil , professional engineer is the best bet while the electrical service provider is the key to ensuring that the minimum set back distances are in fact met.

Des Moines Water Works Litigation

As the battle continues with the Des Moines Water Works suit against drainage districts, sometimes the attacker ends up exposing themselves to unwanted scrutiny. The Des Moines water works $241 million capital improvement campaign may be the first victim. After filing suit against the drainage districts, people began to ask questions about who was in charge of the Water Works and how it operates. Despite serving over 20 communities, the water works board is appointed by the Mayor of Des Moines exclusively. That means that despite the rate payers coming from a variety of municipalities, the rate is set by Des Moines and the proposed capital improvements are decided by Des Moines appointees. Further, the board routinely doesn't provide information without prompting to the communities it is serving. Calls have been made to form a regional board that reflects the entire population of the water works customers, not just the political appointees of the largest city in the state.

Laws are designed to generate revenue of the crown, provide for the common good, and make us behave or not behave in certain matters. In the end, that is what government is supposed to do.Recently, the Iowa statehouse has been busy deciding how they want the rest of us to behave.

Probate costs:
Last year, proposed legislation was suggested to address the inconsistency among judicial districts of assessing court costs on probate assets. The way the matter lies now, depending on what part of Iowa you die in, some assets are charged a probate fee and the same assets in a different part of the state is not  Additionally, the bill addressed the taxation of costs on assets that require no judicial administration, such as POD accounts, joint property, etc.  Because a bill that might stop the state from getting its paws on your funds when you are dead isn't popular in all circles (to the tune over $12 million in funds), it has died prior to the funnel date.  However, this year, a bill was introduced that would rectify the inconsistent treatment of Iowan's dying on or after January 1, 2017.   Unless you know you are going to live until 1 Jan 2017, this short changes you. However, all legislation is deal making, and a mostly fair solution is better than a truly fair solution that never sees the light of day. This mostly fair bill is in the Ways and Means committee on both sides of the legislature.

Communicate with your local State Representatives and Senators  and additionally to communicate with all members of the House and Senate Ways and Means Committee urging them to approve and pass HSB 645 and SSB 3174.

Members of the Senate Ways & Means subcommittee for SSB 3174  are:
 
Rob Hogg  (This email address is being protected from spambots. You need JavaScript enabled to view it.)
Bill Anderson (This email address is being protected from spambots. You need JavaScript enabled to view it.)
Matt McCoy (This email address is being protected from spambots. You need JavaScript enabled to view it.)
 
Members of the House Ways & Means subcommittee for HSB 645 are:
 
Chip Baltimore  ((This email address is being protected from spambots. You need JavaScript enabled to view it.)
Dawn Pettengill (This email address is being protected from spambots. You need JavaScript enabled to view it.)
Todd Prichard (This email address is being protected from spambots. You need JavaScript enabled to view it.)
 
 
Land ownership THE STATE WANTs IN ON YOUR FAMILY DIPSUTE

Representative Bill Dix introduced a bill that would require people who inherit land jointly from their parents to be forced to offer their parcel for sale to the co tenant prior to offering it to a 3d party. The bill then went on to establish what and how a fair price would be determined.  Luckily, this bill died. It is offensive to me that the state can interfere with how a person decides to value and sell their property.  Especially when the bill could be applied to people who inherited it from their parents that had NO IDEA that the state would ever set a method on how their property would bevalued.

In estate planning, lots of times, brothers and sisters end up in co ownership of property. Being forced into business with your sibling is a nightmare for some and a welcome co partner for others. Regardless, that is a property right that having the state stick their nose into is , at most charitiably put, none of their business. The law already has a relief provision for co-owners that don't  want to be co-owners, it is call partition and it seems to work just fine.

Tax Relief Guess what the law will be before we pass it and you might win or you might not. Nothing like changing the tax law for 2015 in the last weeks of March 2016, yet that is exactly what the legislature did. While the federal congress acted slowly in making the accelerated expense deduction rules permanently at the higher amount that it had been annually authorizing for the last several years before the end of 2015, Iowa did not. Iowa debated and him hawed around until Mid-March to retroactively move to allow the larger deduction amount on the state return. March is after the federal deadline to file for farmers who want to avoid underpayment penalties. As a result, farmers who gambled that Iowa would eventually allow more than the $25,000 limit were forced to chose between filing federally but waiting to file Iowa (because Iowa did pass an extension 2 days before its 1 March deadline), filing Iowa using the lower amount and amending later or filing Iowa with the lower amount and carrying two sets of depreciation schedules into tax year 2016, one for Federal purposes with an expensed out item and another for State purposes with the item still having a cost basis to deduct over the next years.

The result of that dithering is extra payment to the farm tax preparer. Many tax professionals invested client's time and money to determine what the best course of action might be for their clients. With the looming low prices and trending lower farm commodity prices, perhaps having a deduction in the years to come will not be such a bad thing. But as a policy tool, this is the worst type of law, as it doesn't even trigger behaviors (like buy more equipment to deduct) because the law is passed retroactively and is only good for 2015. 2016 looks to be more similar shenanigans with no one really knowing what the legislature wants to see happen from a policy standpoint.

Wednesday, December 19, 2018
  • Patrick B. Dillon
  • Jill Dillon
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Patrick B. Dillon enjoys finding solutions to legal issues and catching problems for clients. Pat practices in the Sumner office regularly represents clients in district, associate district and magistrate courts for agricultural, real estate, criminal and collection issues. He drafts wills and trusts, creates estate plans and helps clients through the probate process.
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Jill Dillon focuses on family law, estate planning and IRS matters. Jill is a University of Northern Iowa undergraduate (Political Science Cum Laude) and a Drake University Law School graduate. Jill spent extensive time advocating for low income tax payers in front of the IRS and the State of Iowa Department of Revenue while at Drake.

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