Iowa Farmland Trusts Iowa State Bar Convention West Des Moines, IA Michael Duffy, Iowa State University Ed Cox, Drake Agricultural Law Center June 19, 2013

Objectives To determine the extent and nature of farmland ownership by trusts in Iowa Determine the effects of public policy on the expansion of ownership by trusts. Determine the legal obligations of, and remedies available for, trust parties in relation to the sustainability of trust assets and develop potential state policies that help ensure compliance with fiduciary duties relating to sustainable land management.

Methodology Internet survey of members of Iowa Trust Association; –29 responses; unsure of exact representation for the survey; 25 had trusts that included Iowa farmland; Added questions to the Iowa Farmland Ownership survey; every 5 year survey of Iowa farmland ownership by ISU; telephone survey using 40 acre tract as unit of sample; most answers are as a percent of farmland not people

Observations The majority of farmland reported to be in trusts was single owner or owned by a couple Tax avoidance and estate planning are the main reasons for using a trust but limiting children’s ability to sell or change and other reasons are noted The use of trusts is most prevalent with females and older land owners

Observations Most trustees are the land owners and most trusts are revocable Most trusts are set for only one generation The increasing use of trusts appears to be slowing; saturation or 2007 to 2012 land market? For most landowners taxes are not the major consideration in whether or not to keep their farmland

Observations Conservation and sustainable agriculture practices are almost totally absent from trusts Trustees believe soil conservation is a duty The impact and desirability of having conservation practices in a trust needs to be researched and discussed

Not a new idea. “[H]e must be too improvident a man to be a good farmer, who should invest in the land capital sufficient for high cultivation, without some security ….” — George Wingrove Cooke, Attorney, “The tenant who expects to remain but a short time on a farm has little incentive to conserve and improve the soil.…” — Report of the President’s Committee on Farm Tenancy, February “I’m not going to want to put in hundreds of hours of sweat-equity into soil that I may not have next year.”— Iowa farm tenant, 2001 Land Tenure Significance

There are New Circumstances Disconnection from the Land Geographic Cultural Symptoms Leases/Cash Rent? Trusts? Next Generation Landowners Secondary Income Environmental Concerns

Corresponding Public Policy Historically Focuses on Farm Leases Lease Termination Statutes (Iowa Code 562) – Upheld in Benschoter v. Hakes on police power grounds to prevent soil exploitation and waste. Covenant of Good Husbandry. – Implied Covenant referenced in Iowa and a dissent in Moser v. Thorp Sales Corp. based on protection of soil.

Soil Asset Protection in Private Contracts Leases ✔ Land Contracts Covenants Articles Trusts

A Closer Look at Trusts Multiple parties – potentially more than a lease. Fractionated interests Usually, though not exclusively, managed by a non-operator Provisions of the document rule.

Public Policy Nothing specifically addressing land stewardship. How do legal duties apply to soil assets? – Survey: 91% of trustees say soil conservation is a factor in executing their fiduciary duties. – Variations in significance of this factor: “Soil conservation has a direct relationship to the quality and value of the asset (farmland) in which the Trustee is to manage.” “Only if failure to do so would affect the land in a substantially negative way.” – How do we measure the economic impact of soil loss?

Trustee’s Duties Owed to Beneficiaries – Remaindermen have remedies Loyalty and Impartiality Special Skills Administer as a prudent person – Determination “focuses primarily on the ‘purposes, terms, and other circumstances of the trust.’” (Heidecker Farms v. Heidecker, 791 N.W.2d 429) (2010)). Exercise care, skill and caution in delegation Duty to Inform and Account Leases as a record: terms and enforcement of conservation and husbandry provisions?

Adherence to Trust Provisions Trustors have the power to direct asset management to some degree. Survey shows Significance may increase as land passes to non-farming heirs.

Limits on Trust Terms? May not authorize the trustee to: – Act in bad faith, – Disregard the purpose of the trust, or – Disregard the interests of the beneficiaries. Does this require a balance between stewardship and production? – How much does the express purpose control? What about off-farm conservation purposes?

Thank-you Mike Duffy 478 Heady Hall, ISU Ames, IA Ed Cox Drake Agricultural Law Center 2621 Carpenter Avenue Des Moines, IA