Bringing others into the farm and navigating landownership risks

Your land is your life, but have you accounted for the risks?

In this episode of Straight Talk with NDFB, NDFB CEO Jeff Missling and attorneys from Ohnstad Twichell Law Firm continue the Harvesting Legal Knowledge series.

The discussion focuses on the real risks tied to land ownership in agriculture and why it’s critical for farmers and ranchers to understand how those risks can impact their farms and ranches, not to mention their long-term goals. The conversation also shifts to one of the most important — but often difficult — topics in farm succession: bringing the next generation into the operation.

From ownership structures and contracts to planning for transitions and protecting the land, this episode highlights why having a clear succession plan matters and how it can help families prepare for the future.

Links:

Harvesting Legal Knowledge

Contact us at emmery@ndfb.org

Disclaimer: The statements made and information provided in this podcast are for educational and informational purposes only. The statements do not constitute legal advice, nor are they intended to create an attorney-client relationship. Every situation is unique, so you should not rely on any statements in this video as a substitute for personalized legal counsel. Before taking action or making any decisions which may affect your legal rights and obligations, you should consult with an attorney licensed in your jurisdiction.

Transcript

[Straight Talk theme]

[00:11] Emmery: Your land is your life. But have you accounted for the risks? Welcome to Straight Talk with NDFB. I am your host, Emmery Mehlhoff. Farming and ranching are tough businesses, and legal issues can just complicate things. That's why this season features Harvesting Legal Knowledge, a conversation between NDFB and the Ohnstad Twichell Law Firm. NDFB CEO Jeff Missling and the attorneys at Onstad Twichell break down key legal topics impacting farmers, ranchers and ag businesses every day. 

[00:42] Today we're digging into the risks of land ownership and what it really looks like to bring the next generation into the farm. As always, if you have a specific legal question, be sure to consult an attorney who can address your situation. Let's get into the episode.

[Straight Talk stinger]

[01:01] Jeff: Welcome to a series we're calling Harvesting Legal Knowledge. It's a collaboration between NDFB and Onstad Twichell Law Firm. My name is Jeff Missling. I'm executive Vice President and CEO of North Dakota Farm Bureau. With us this morning, we have Tiffany Findlay and David Piper of Onstad Twichell Law Firm. And we're going to talk about this morning is real estate and what happens when you own property. David, if you want to start us off, I guess with some of the considerations with real property ownership and private property rights.

[01:31] David: Yeah, thanks, Jeff. So, you know, a lot of people, obviously with farmland and ag land, it's been the family a long time, hopefully, and, you know, we got the homestead to think about and, you know, there's a lot of things to think about that maybe, you know, you don't think to tell your kids when you're getting them involved, you know, such as drainage rights and renting and what a rental agreement with your tenant, lets them do what you get to do, which, you know, leads us down the easy path of why it's a really good reason to always have those things in writing.
 
[02:05] You know, we're kind of forced these days to move away from the handshake agreement over the dinner table or the kitchen table with people you've known for years and years, because there's getting less and less farmers every year and the farms are getting bigger. So with that, we don't know our tenants as well. So that makes it more important to have those kind of agreements in writing just so everybody knows what the expectations are, what the requirements are. 

[02:36] You know, it's more than just, okay, it's X number of acres and it's going to be X number of dollars per acre. Who does the default tillage? What kind of pesticides can you use? Who's going to mow the ditches, that kind of stuff. So there's, there's a lot of issues that, you know, come with owning property rights, especially ag land, that you just want to be familiar with, and you want to have someone who has the knowledge and expertise to help you get it across the finish line, to make sure you're protected, your family's protected, and that, you know, if the dispute does arise, you know, you guys can point to a legal document, says, here's how to resolve it, or, hey, court, if we can't figure it out, we need you to help us figure it out.

[03:14] Tiffany: Real property ownership can be very serious nowadays. So it is important to make sure you're cautious on how you're using your land, how you are renting your land, what implications the rental does have, and making sure that you have the improvement and maintenance terms in some of those written agreements so that everyone is on the same page with where everyone should be going with their real property and how to handle the real property. Um, it's also very important to make sure that you are very cautious when you are changing ownership of your land or making sure that that ownership can succeed throughout the generations of the farming industry.

[03:53] Jeff: One question that I think your law firm and us as a farm organization, we receive a lot of inquiries from our membership base out there, a lot of landowners across the state, but a situation where maybe somebody isn't the sole owner of that property. Um, I'll give you a question here. Don't I own half the acres if my sister and I are on the title, is the question.

[04:13] David: So it's a great question. And you and your sister, each own an undivided 1/2 interest in every inch of dirt. It's not like unless the deed says otherwise, you know, you're... Normally when you got, you know, kids, Mom and Dad, unless, unless someone farms and someone moves away and they don't want it, usually Mom and Dad give it to kids and they each have an undivided equal ownership interest. And that is an equal ownership interest in every single square inch of that dirt. So if it's just brother and sister and mom and dad pass, they leave it to a brother and sister. Unless there is a conveyance in the will or some kind of deed where brother gets this half and sister gets this half, you and sister each own an undivided 1/2 interest in every single acre, every single, single square inch. 

[05:04] So it's, it's not, hey, I can rent out my half to John Smith. And she can rent out her half to John Doe. It's, "We have to both sign a lease if we have a single tenant or if we're going to have multiple tenants." Because if there's pasture and someone ranches and we got crop land, farmland, and someone farms it for us, but generally it's going to be you're both having equal ownership interest in that dirt. Unless Mom and Dad have a will that testify specifies, daughter gets this, son gets this.

[05:34] Tiffany: A lot of people may not realize how important the language on your deed is. So it is very important to make sure that when you have a deed to land that that deed says exactly what you think it does. And also recognize that tax statements don't always have the correct ownership. So making sure that you are having the deeds drafted and the other documents, like leases drafted according to the exact ownership of record is always very important so that you and your sister aren't confused on who owns what.

[06:06] Jeff: What are the options for owning real property with other people? I guess, are there some other options there that...

[06:14] Tiffany: There's a lot of different options. The most common and the standard in North Dakota is to own real estate between two or more people as tenants in common. Meaning, like what David was just saying, saying the people both own undivided interests to the whole of the property. There is no separation. And when someone passes away with a tenancy in common interest, that half interest or that third interest is transferred according to their estate plan. There is no automatic succession. 

[06:47] The other most common type of ownership between two or more people in North Dakota is joint tenancy ownership. The same concepts with joint tenancy as tenants in common, where you own undivided interest to the whole of the land. However, there are some succession rights where when one joint tenant passes, that property can automatically succeed to the other joint tenants named on the deed at that time.

[07:14] David: And so with the joint tenancy and the tenants in common, it's really important when, you know, Mom and Dad, when they own the land, they're doing succession planning, when they're talking, you know, hopefully with their attorney about, you know, what they want. If it's, yeah, it's going to go to son and daughter, you want to make sure that deed is drafted correctly. Because if, let's say, let's say they both, son and daughter, both have children, and if that deed is drafted so that brother and sister get title as tenants in common, if something were to happen to one of them, their interest would go to their family. However their will sets it up. If. If it goes to son and daughter as joint tenants. If son dies and he has a wife and he has three kids and you know, either wife and, or kids farm or want to farm, technically his interest would go to sister under a joint tenancy deed. And that may not have been what Mom and Dad wanted to do. 

[08:09] So now we got a family fight. If sister doesn't want to play ball or it's, you know, nothing else, it makes it awkward and it's like, you know, son's children and spouse have to go to sister be like, hey, you know, we all talked about this. Mom and dad they wanted you to have a 1/2 interest. They wanted, you know, my husband have a 1/2 interest. They did this wrong apparently. Or someone did it wrong and now we gotta fix it. So if nothing else it's, it's very important to make sure that you have those kind of documents done by professional because if you don't, it can cause real problems down the road which are usually avoidable if you talk to an expert and have it done properly.

[08:44] Emmery: This is where a succession plan comes into play.

[08:48] Tiffany: There are many consequences to having the ownership transferred inappropriately. But one tool that we are starting to see come up a little bit more in the farming industry is the use of a life estate deed where the owner or owners of record transfer what we call the remainder interest down to say their son who is farming and their daughter to make sure that maybe the non-farming daughter gets an equal right to some of their net worth. 

[09:19] It is important when a life estate deed is done to make sure that the remainder interest if, if you are transferring to more than one person that you know how that remainder interest is being handled. Because same as normal ownership of title when there are more than one person, your remainder interest can also be granted as tenants in common or as joint tenancy. And they have the same types of consequences that apply when you are looking at the sole title to the land as tenants of common or joint tenancy.

[09:56] David: Then there's, there's also the, the transfer on death deed which is similar but, but very different to the, the life estate deed. The transfer and death deed has a little more flexibility. You transfer it essentially the remainder interest to whoever you know, generally your children upon death automatically. But with the transfer and death deed it can be revoked during someone's lifetime whereas the lifestyle deed cannot. So gives you more flexibility. 

[10:25] But then there are potential tax implications to that too about when did it transfer? Is there a step up in basis? When does that step up in basis happen? So it's very important from a planning perspective to figure out how you want to do that, when you want that to essentially trigger. And you know, that's where Tiffany comes in because that's, that's her area of expertise. That's what she does. And she'll make sure to explain that to you and help you get through, you know, the process and figure out, okay, how do we want to plan this? You know, do we want to step up and basis at this point of time, which is when someone passes away versus when the second spouse passes away, which, which they're hard conversation to have. 

[11:07] You know, no one likes talking about that stuff, but to make sure you do it right, to do what you want to do it, and there's no right or wrong answer. You know, it's, it's dependent on families. Families want to handle things differently and that's, that's the way it should be. But if you don't talk about it, you don't talk to an expert. There's lots of room for, for pitfalls and, and then it gets, it gets messy and it gets difficult and challenging, and a lot of stuff can be avoided on the front end. If you work with someone like Tiffany who, you know, focuses on that area of law and how to help, you know, plan that succession from mom and dad or with them.

[11:40] Tiffany: Communication is very much key when you are planning or even after you go through with the plan. You know, once there's more than one person on the title, you have to make sure to communicate what is happening with the land, what the plans are, how you are using the land. Those things are very important to make sure that everyone who is on title is very much involved with, so that you don't end up with disruptions to the land or miscommunications between the title owners who are looking to use the land in different ways.

[12:11] Jeff: It sounds crazy that we even have to say, say this, but that communication piece is so critical. I mean, and a lot of families, we hear that routinely from our members out there that you just haven't sat down and discussed some of these things. And, you know, you just never know what the future holds. And, and so to be proactive is probably the best way to approach any of these issues. Right? I mean, have a plan in place, don't be afraid to, to try to broach that subject with your son or daughter, mom or dad to get the, the ball rolling.

[12:43] David: and, and not to, not to throw dads under the bus, but my family's had our family farm in the family since 1904. And my dad's an attorney. He was an attorney for 50 years. He retired at the... three years ago when he turned 80. Loved doing it, but, you know, I'm an attorney. My older brother went to law school and my dad knows better than anybody, and we still can't get him to talk to us about it because it's just... 

[13:11] I feel like it's that generation and my mom is more willing to have that conversation because she wants us to all be on the same page. My dad's. My dad thinks he's invincible. I'm like, you're. You're 83. I hope you live forever. But you'd be the first person. So, you know, chances are you're not invincible either. And it's, it's hard to have those conversations, but to avoid the stress and the headache later, you gotta have those hard conversations. And it's just. It's just something that needs to be done.

[13:40] Tiffany: Yeah, my family's going through the same thing right now, trying to pass my family's farm on to my brother. And, you know, it's, it's hard. You. You don't have a crystal ball. You never know what different types of issues can come up now or, or in the future that if there would have been communication, you know, we wouldn't have ever had to worry about.

[13:57] Jeff: Yeah, good point. Thank you, Tiffany. Thank you, David.

[Straight Talk stinger]

[14:03] Emmery: You've been listening to Straight Talk with NDFB, our Harvesting Legal Knowledge season. To watch the entire interview with Jeff and Ohnstad Twichell, please click the link below. If you have any questions, contact us at emmery@ndfb.org.