Farm Horizons, Oct. 2017
How trusts and farms go together
By Gabe Licht
When flipping through a plat book, it’s common to see farms that are in trusts.
What does that mean, why is it common, and how can farmers go about putting their farms into trusts?
“A trust is a private agreement among parties,” said Greg Kummer, trust president for Security Bank & Trust Co. “They’re most commonly used in real estate planning for a variety of planning for people, including those who own farms. Because it is a private agreement among parties, it doesn’t go through the court process.”
Revocable living trusts are most popular. They are created by the owner of the property, known as the grantor and can be changed as the grantor’s circumstances or wishes change.
“While you’re alive and have the capacity, the document is amendable and revocable,” Kummer said. “You can write someone out of it. You can add a charity or remove a charity.”
While grantors are living, they are also the trustee of their trust. They identify who the trustee and beneficiaries will be when that time comes.
“In their document, when they’re unable, incapacitated, or they die, they name other trustees,” Kummer said. “That’s when we come in. That’s the only time we get paid. We don’t get paid until we actually do something.”
Kummer believes it is common sense to put a farm into a trust, especially if it is valued at more than $500,000.
“We use the old pennywise, pound foolish statement,” Kummer said. “Farmers spend a lifetime generating and gathering wealth.”
He advises farmers to protect that wealth.
“Once you start getting to $1 million or $500,000 in assets, you should start planning a revocable trust,” Kummer said. “You can leave a mess behind, or leave something that can be managed by others . . . Planning is better than not planning.”
Farmers with varying sizes of farms do so.
“I see farm revocable living trusts under a half a million dollars and some multi-million,” Kummer said. “If you get really large, you generally create partnerships, and it gets very complicated. They can still assign partnerships into revocable living trusts to be managed in one bucket.”
A logical first step to establish a trust is to visit with a lawyer.
“You can visit with your financial professional, which could include a trust officer, investment individual, CPA, or attorney,” Kummer said. “At the end of the day, you have to go to your attorney to get these documents drawn up.”
Kummer commonly works directly with attorneys.
“They’re the main contact that walk people through the process,” Kummer said. “They draft the documents, so they know what you have, what it’s worth, and how it’s titled. They fill out the documents answering those questions, as well as personal questions. It’s very detailed.”
Attorneys will have their clients sign a pour-over will.
“They pour them over into the revocable trust at the appropriate time,” Kummer said. “There’s four documents they typically do: a revocable trust, pour-over will, power of attorney for making decisions while you’re still competent and when you’re incompetent, and a health care directive that answers “What are your wishes?”
When the grantor is incapacitated or passes away, the trustee steps in to manage the trust.
“The asset can be directed to be sold. It can be directed to be held. If farmland prices are up, we may be more inclined to sell. If farmland prices are down, we may be inclined to hold it and wait. The trustee has that discretion,” Kummer said.
Before that point, it must be determined when and how the trust will pay out to the beneficiaries.
“They can pay out immediately,” Kummer said. “They can pay out over a term of certain years or a lifetime . . . There’s a lot of philosophy to determine when their kids or grandkids would get access to the money.”