Sharply higher land values, coupled with complex dynamics shaping land transactions between buyers and sellers, make estate planning more important than ever -- especially as land ownership moves on to the next generation. In fact, you're never too young to start the estate planning process.

A lot of land will transition to new owners within the next 20 years, especially from active farmers to non-operators who aren’t involved in farming. There also will be more family members owning land who haven't been active on the farm. That transition requires more complex estate planning to give the current owner control as far as where the land will go, who has the right to manage it, divide it, tax benefits, and probate.

Land as an Asset

Paul Schadegg, Senior Vice President of Real Estate at Farmers National Company, has talked extensively about the supply and demand dynamics driving land values sharply higher over the past couple of years. Land continues to be an excellent asset class to hold as either an investment or as a family legacy and store of wealth. As an investment, land has consistently outpaced many other investment classes in total returns, including the S&P 500, bonds, and commodities. It's also a great store of wealth that performs very well in inflationary environments and can be easily passed to the next generation as a family legacy.

Transfer of Wealth

According to the August 2023 Iowa State University Land Ownership and Tenure study¹ conducted by Jingyi Tong and Wendong Zhang, two-thirds of land in Iowa is held by someone 65 and older, of which only 29 percent was held by this age group in 1982. Additionally, 55 percent of this land is held by a non-operator who does not currently farm. These trends will drive a continued increase in the volume of land changing hands in the next 25 years. Granted, much of this land will go to the next generation of active farmers, but more than the average amount in years’ past will go to family members who do not actively farm, as well as other non-operators, trusts, and institutions.

Trusts and Institutions

In that same ISU study, trusts accounted for 23 percent of land owned in Iowa as of July 2022. Three decades ago, almost none was owned in a trust. Most of these trusts include families with revocable living trusts, corporations, or limited liability corporations, as well as institutions and non-profit organizations. The benefits of setting up a trust to transfer land include better owner control and the ability to set clear direction about how the landowner’s assets are to be managed or divided among multiple beneficiaries. Trusts also can be set up to avoid legal complexity and probate and capitalize on tax benefits through this transition.

Estate Planning

The transfer of land to more non-operators, trusts and institutions requires more estate planning. An estate planning team often includes a qualified attorney, financial advisor, tax advisor, and professional farm manager when land or other special assets are involved.

Farmers National Company often provides professional help to landowners and families as a member of this estate planning team. We also provide multiple resources, webinars, and landowner workshops to assist landowners with this critical need. If you are interested in any of these resources or would like to visit with someone who can help with professional farm management services, please contact us. Or, visit our website in late December for our 2024 event schedule.

¹Iowa State University Land Ownership and Tenure Study: 1982–2022: A 40-year Perspective