HAPPY HOLIDAYS

I hope you are having a very Merry Christmas and wish you all a Happy New Year. May we all find innovative and resourceful ways to meet the daunting economic, environmental, and political crises we face.

In Johnston High School News

 CONGRATULATIONS to Mr. Yenger and students who competed in an academic competition, “We the People”, on 11/24. The purpose of the program is to foster a high level dialogue about the Constitution and to understand the principles and how they relate back to modern day events. JHS won 1st place in the state and will compete in the National Finals in Washington, DC in April. Students competing were: Kevin Shi, Fred Shen, Jennifer Ajluni, Alma Jovancevic, Joseph Payne, William McDowell, Ethan Nutter, Neal Herink, & Yelena Varley

Farm Land Real Estate Auction; Adair County, Iowa

Real Estate Auction Report:

November 19, 2008:

An 80 acre tract of level to moderately sloping riverbottom with 70.3 acres of HEL crop land with a CSR (corn suitability rating) of 79.4 on the tillable acres brought $304,000 at an auction conducted by Hertz Real Estate Services. There were a couple of grain bins on the property and an ROW easement through the middle of the parcel, but I don't think those factors affected the price appreciably. The price comes out to $4,324 per crop acre or $54.46 per CSR pt/a. That is an 8 to 10% drop from the way land was selling this summer. The biggest factors in that drop are the fall in commodity prices, uncertainty about the health of the world economy, and a tightening of credit (though ag credit and particularly ag land credit seems pretty solid compared to the rest of the financial industry).
Here is an interesting side note: The previous purchaser of this property paid $15,750 for the whole 80 in 1964. Even with inflation, a nineteen-fold increase is a pretty good return on investment (42.9% per year), and a stepped-up basis at death, to boot.

So you want to be an Executor

You are named as executor in the decedent’s last will (so far as we know). You have several options:

1. One is to do nothing and wait for the five-year statute of limitations to expire. This would involve risking the opening of an estate by a creditor who could force you to disgorge assets that you received from the decedent that were not paid to a priority creditor. Priority creditors are the expenses of administration of the estate (including any taxes owed and your court-approved fees), expenses of funeral and last illness, and any unsecured debts the decedent left behind (in that order).

2. Iowa law permits you to distribute an estate by affidavit that is less than $25,000 and does not include real estate (excepting real estate held in joint tenancy) without opening a probate estate. You are still obligated to pay any potential claims against the estate in the order set forth above and can be held personally liable if you distribute funds to the wrong creditor for the amount that should have been paid to the higher priority claim. If you choose this route, I recommend that you file the will with the clerk of court to verify your authority and for safe-keeping of the will in the event litigation follows.

3. You may file a petition for probate of will without present administration. This route encompasses all the factors set forth in No. 2 above, but includes publication of notice to creditors in a local paper for two consecutive weeks and mailed notice to known creditors, heirs at law, and beneficiaries under the will. This action starts the clock on the compressed statute of limitations on a decedent’s estate (4 months from second published notice or 30 days from mailed notice). However, with this option, you should be prepared for the possibility that a creditor will want an administered estate to be opened. At that point you would need to decide if you wanted to continue to serve as executor.

4. The third option would be for you to open a full probate estate. This would result in your obtaining letters of appointment from the district court which would give you the judicial machinery to compel discovery and marshal assets. You would become the personal representative of the estate and would have the following duties:

As Personal Representative of the Estate, your responsibilities include the collection and valuation of the Decedent’s assets, the payment of debts, expenses of administration and taxes, and the distribution of the remaining assets to the persons entitled to receive them.

Your first task is to identify and value all property in which the Decedent had an interest. Each item of property, together with its value, will be included in an estate inventory. By law the inventory must be completed and filed within 90 days after the date of your appointment. The probate inventory includes assets that pass outside of this will, such as joint tenancy property, life insurance proceeds, retirement accounts, transfer on death accounts, and annuity contracts. The probate code requires this to fulfill the orderly transfer of assets at death function of the probate process.

As soon as practicable following the admission of the Will to probate, notice of the admission of the Will to probate must be given by ordinary mail addressed to each heir of the decedent, and each devisee under the Will, and the creditors of the estate whose identities are reasonably ascertainable. This notice must be mailed to such person’s last known address.

Complete records must be kept of all cash and investment transactions. All receipts should be deposited to and all disbursements should be made by a check drawn on an estate checking account.

An Iowa Inheritance Tax Return would have to be filed, not later than the last day of the ninth month after death, but no tax would be due because the gross value of the estate assets are less than $25,000.00. Because the estate is less than two million dollars, no federal estate tax return is required.

The decedent’s final income tax returns covering the period through the date of death must be filed and any tax paid. You must obtain a federal tax identification number for the estate.

It may also be necessary to file federal and state fiduciary income tax returns for the estate. The number of returns filed and the filing deadlines will depend upon the income of the estate, the length of time the estate remains open and the fiscal year selected for the estate. It is to your advantage for the estate to generate at least enough income to offset the administrative expenses of the estate, including fees, if possible.

After all known debts, administration expenses, and taxes have been paid or provided for, a Final Report and accounting will be prepared. Depending on the length of the period of administration, it may be necessary to prepare one or more intermediate reports and accountings. Copies of the reports must be given to all persons interested in the estate. When the estate is closed, the Final Report will be filed with court. Normally, final distribution of the assets will await the closing of the estate, although as I said, many of the financial assets are being transferred directly into the residuary trust. However, depending on such factors as the size of the estate, the needs of the beneficiaries, tax considerations; earlier partial distributions may be in order.

As Personal Representatives, you are entitled to compensation for services performed and responsibilities assumed, and for reimbursement for expenses. The fee you receive is subject to income tax but not social security tax since you are not a professional fiduciary. You are entitled to waive any or all of your executor fee. All fees are subject to court approval.

Boundary Line Dam Easements

Here is a tidbit from my agronomy days applied to agricultural law: Soil is composed of four solid constituents: sand, silt, clay, and organic matter. The most productive soil is a loam, which contains roughly equal proportions of sand, silt, and clay (and as much as 4 or 5% organic matter). Most of western Iowa is blessed with clay loam and on the riverbottoms with silty clay loam thanks to wind-blown silt particles called loess (pronounced “luss”) left behind by the glaciers after the last ice age. Silt is, by far, the most easily eroded soil component. Hence the need for silt dams and fences to prevent bodies of water from filling up with silt. Structures that catch silt such as dams and terraces have to be cleaned out periodically to maintain their water holding capacity. For instance, when one builds terraces with state conservation cost-sharing money, one signs a maintenance agreement that ensures that the terrace’s design capacity will be maintained. By the same token, because of its erosive nature, silt makes a poor dam material. Earthen dams and terraces must be built of clay, which is a much smaller particle, but which has high particle adhesion.

It has been my experience as a farmer that nothing is harder on dams than cattle. In fact, if you build a dam with conservation cost-sharing assistance, you will be required to sign an agreement requiring you to fence cattle away from the dam and allow grazing of the dam only under limited circumstances. It is also for this reason that conservationist are encouraging farmers to fence cattle away from river banks.

My adversary suggested in his letter that a dam is higher or longer than the original easement signers contemplated. Because there is a fence across the dam, I think it is safe to say that the dam height has not changed at least since the fence was put in. In addition, the original dam height may have been too short. When I worked for the Soil Conservation Service we used to call home-made under-capacity dams (which seemed to be common in the 70’s) “doodle dams” because they would be washed out by the first heavy rain. Any structure designed to retain surface water should be designed with the capacity to hold the runoff from a Q-25 storm. The parties could have the Natural Resources Conservation Service (NRCS) evaluate the dam to see if it is sized appropriately for the watershed it serves. There may even be cost-share money available for the structure. But even without that, the clear purpose of the easement was to protect the clients’ pond from silt runoff and the current size of the dam no doubt reflects the wisdom of the years with respect to the sizing of the dam, regardless of the size speculated in the original easement agreement.

Cash Rent Leases

Now is the time dictated by Iowa law to begin negotiating crop land leases for 2009 or at least notify your tenant/landlord, as the case may be, if you wish to change any of the terms in your current lease. (That requires mutual consent in the case of multi-year leases.)

Rents on the whole will rise this year. Aside from high grain prices, cash rents are at a historically low level in terms of their percentage of land value. (See William Edwards' excellent analysis for ISU extension.) As interest rates rise, land values will decline and with them, so will cash rental rates but at a slower rate as the return on investment moves back toward historic levels.

In the meantime, we are dealing with the current environment. Based on recent sales, land prices in the Adair and Guthrie County areas seemed to have topped out in the $60 to $65 per CSR point range. Using a 5% ROI on $60 per CSR yields a $3 per CSR point cash rent. I have seen cash rent as high as $4.75 per CSR point, but I think $3/pt will catch most of the rents on good quality farm land in this area.

A number of landlord/tenant negotiators are switching from cash rent to a hybrid lease in which the rent is paid in whole or in part in bushels of grain. The production decisions and production risk remain with the tenant (and its crop insurer) but the landlord assumes some of the market risk and relieves the tenant of some cash flow requirement, which is attractive to the tenant in this period of rapidly escalating input prices.

Good luck with your negotiations!

Iowa Smoking Ban Rules

Is your business or public place in compliance with Iowa's new smoking ban rules?

Smoking Ban Resources

You must post signs with the violation reporting phone number and website at each entrance and in each vehicle.

Tax Tip

Remember: Internal Revenue Code Section 179 was amended for 2008 to allow the expensing of up to $250,000 of machinery and equipment purchases (more in some areas).

Land Auction Results

A farm land auction was held in Stuart, Iowa on June 30, 2008. Here is my analysis:

Parcel 1: 240 acres; crop acres 224.4; FSA corn yield 108; CRP acres 10.5;

ave CSR 60.66; $3,750/acre; $61.28/CSR pt

Parcel 2: 198 acres; crop acres 169.5; FSA corn yield 117; CRP acres 15.6;

ave CSR 56.08; $3,575/acre; $63.84/CSR pt

Parcel 3: 155 acres; crop acres 150.7; FSA corn yield 106; CRP acres 0.7;

ave CSR 62.61; $4,000/acre; $63.89/CSR pt.

Parcel 4: 130 acres; crop acres 115.9; FSA corn yield 108; CRP acres 9.7;

ave CSR 52.94; $2,950/acre; $55.72/CSR pt.

Other factors: Tile & terraces; Parcel 2 included 15,000+bu of grain bins and drying system; Parcel 4 bisected by creek

Chris Nelson for Iowa House seat 58

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No cost (and probably no value) for this plug.

All opinions expressed are strictly those of the blog author.

Iowa Crop Land Cash Rent

We had a cash rent auction for 312 acres of cropland with an average CSR of 69.52. It is an unusual way to set rent, but required in this instance because the land is held by an estate with litigating beneficiaries. The auction started at $310 per acre and ended at $334 per acre-- by far the highest rent in my practice. It is even higher when you consider that the 312 acres includes 5.1 acres of required waterways and another 5.5 acres of permanent pasture and hay ground. The crop acres will be planted to corn. High prices, high yields and high crop revenue insurance are required for that kind of rent price to make sense. Good luck to all the farmers out there. This year has the makings of a higher stress growing season than usual.

ISU cash rent survey

Tax Tips

1. With the slowing of the economy and the contraction of the housing industry, I am seeing a sharp increase in people tapping into their 401K, IRA, or other retirement accounts. This is a risky thing to do. Not only are these folks losing their retirement nest eggs and the tax deferred compounding that is the secret to having a comfortable retirement fund, they often do not have enough taxes withheld and are greeted with a hefty tax bill the following spring. This is because, in addition to the 10% penalty for withdrawing the funds early, taxpayers are often bumped up into a higher tax bracket or lose tax credits, such as the child tax credit. If you absolutely have to have the money, consider borrowing the money with the retirement account as collateral so that you do not have the distribution penalty and are disciplined to pay the funds back. Be aware that there are regulations restricting how you can borrow against your retirement plan and that you will be in the same tight spot, paying taxes and penalty, if the lender has to foreclose on the retirement fund.

2. Here's another scenario: Retiree is taking a regular withdrawal from his investments. He is taking out about the same amount as the funds are generating in interest, dividends, and capital gain. However, he is being ripped off. Here's why: His funds are primarily invested in dividend-generating stocks and the stocks are set to reinvest the dividend. Normally this is a good practice. It helps you compound your investment and the investment is usually free or very low cost. However, since the retiree is drawing funds out of the account, he should take distribution of the dividends instead of paying his broker fees for liquidating stock to make his distribution. It also makes for an accounting nightmare as the basis of each stock is constantly changing with all the purchases and sales of irregular numbers of shares.

3. If you are thinking about buying an annuity, please, please, talk to your tax adviser first, particularly if you are over 65. Whatever you do, do not get tax advice from the guy who is going to get a big commission for selling you the darn thing.

Good luck with your taxes ("the cost of civilization," as OWH said).

from Johnston High Announcements

ANNOUNCEMENTS
THURSDAY, FEBRUARY 28, 2008
TODAY IS AN “A” DAY

☺ CONGRATULATIONS go out to the Mock Trial Team A/B for their work at the Dubuque Mock Trial Invitational last Saturday. The team, consisting of freshman Ananya Kumar, Jake Hanson, sophomores William McDowell, Yiming Qin, Daniel Ratekin, Yelena Varley, John Temple, juniors Neal Herink, Alma Jovancevic, Huzzaifa Mohammad, Sarah Engstrom and Brittany Deal, won the Civility Award for outstanding professionalism (emphasis added.).

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