Strategies for land ownership
By Janet Kubat Willette
Date Modified: 02/05/2013 4:18 PM
MINNEAPOLIS -- If you thought building your farm was tricky, wait until it's time to pass it on to your heirs.
Attorneys David and Brenda Velde explored some of the options available during a seminar at the Minnesota Farmers Union annual meeting in November. The couple are partners in the Alexandria law firm of Velde Moore, LTD.
A variety of land ownership models exist, David Velde said. Land may be owned jointly, as an individual or with siblings. Remember, he said, if land is owned by siblings and one dies, that owner's share goes to his or her heirs, not the other owner.
In other cases, when dad passes away, the land is put in mom's name and the kids' names. This could have ramifications if one of the children encounters some difficulty as the land is one of their assets. Also, if mom wants to sell the property and move to town, she'll need signatures from all her children because they all own the land jointly.
If names are simply added to the deed, the basis is the same as the original owner. So if mom and dad bought the land for $100 in 1952, that would be the basis for the children. If, however, the land is inherited, heirs receive a stepped-up basis, which pegs the price of the land to the price it is when the parent dies.
A variety of strategies exist for passing on property, including life estates, where the land is deeded to the children and the parents continue to benefit from the property until their death. Upon death, the children receive a stepped-up basis.
Trusts, both revocable and irrevocable, are other options.
Tension often accompanies these transitions. Say there's three children and one wants to farm. Velde advises parents to figure out a price for the land early on and determine a way to satisfy the interests of their non-farming heirs.
Equal is not always fair, Velde said. For example, giving one-third to all three children may seem fair, but is it fair if one helped build the operation?
It's difficult to have conversations about passing on property because it forces people to talk about a world they aren't part of.
Long-term care also needs to be part of the discussion when talking about passing on property, Velde said. When comparing long-term care policies, look to see when the benefit begins after a person requires care. Also, look to see if premiums are still required if one spouse is a recipient of the policy. See if there's an escalator, because the cost of care continues to rise. Don't buy the first policy you encounter, shop around.
Long-term care insurance is becoming increasingly popular, Brenda Velde said.