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Many of you have farm succession plans or estate plans to handle issues related to both on-farm and off-farm heirs. But have you communicated decisions in these plans to both sets of heirs? An interesting case out of North Dakota, Estate of Feldmann v. Evans, addresses that issue. In this case, the Supreme Court of North Dakota agreed that testimony showed the father had gifted all the farm equipment to the on-farm heir, equipment which was not a part of the off-farm heirs’ shares of the estate. The on-farm heir was also entitled to the wheat crop growing on his inherited farmland. The off-farm heirs were only entitled to proceeds from the wheat crop harvested at the time of the dad’s death.
The take-away from this case: families should discuss these issues to make sure that everyone is on the same page, so heirs understand how the property will be treated at death (or when it is gifted to another heir) to reduce tensions and avoid litigation.
Facts of the Case
In Feldmann, the father had one son who appears to be on the farm and two daughters who appear to be off-farm. The father and son agreed in 2004 that son would farm dad’s land using dad’s equipment, with dad keeping the proceeds. In 2009, one of the daughters overheard a phone conversation where dad said: “the farm equipment is all the son’s now.” Father dies in 2011 with a valid will leaving farmland to son and personal property to his daughters. At the time of his death, a majority of the father’s wheat crop was unharvested.
Issues Before the Court
The court had to deal with two issues:
Was the farm equipment gifted to son?
Did the proceeds from the wheat crop belong to the father’s estate and not the son?
Court’s Decision
A valid inter vivos gift, or a gift made during one’s lifetime, requires an intent to give the property to the other party, actual or constructive delivery of the gift, and acceptance of the gift by the other party. Without the testimony of the daughter regarding the overheard conversation, the farm equipment would have been considered personal property that the daughters potentially would have been entitled to if the court determined the property had not been actually gifted to the son.
In looking at this case, the dad’s will mentioned a list of property considered personal property, but the list was missing. Also missing were tax documents which might have demonstrated gifting of the farm equipment to the son. The only evidence of the gift was daughter’s testimony of the overheard phone conversation where her dad stated that the farm equipment was now the son’s property. The North Dakota Supreme Court considered this enough evidence to support the claim the farm equipment was a gift to the son and upheld the trial court’s ruling.
Typically, unharvested crops go with the real property. Here the dad had an arrangement with son that stated that son did the work and dad got the proceeds from the crops. The lower court had ruled that the standing wheat crop passed to the son as a part of the real estate. The harvested crop’s proceeds passed to the two daughters. The North Dakota Supreme Court agreed with this ruling and affirmed the decision of the lower court.
Why Care?
This case highlights what can happen when parties do not clearly state what is happening to the property upon the party’s passing. Here the dad had an estate plan, but made changes (giving equipment to the son) and did not let the other heirs know about the changes. The change impacted the daughters’ shares of the estate and you can see why one might fight over it. That daughter might have felt that her brother was getting everything from dad and she was not being treated fairly. The case highlights why communication is important in handling these issues to help preserve families after your passing.
To get more information on farm succession planning and estate planning, check out the UME’s farm succession planning page at https://go.umd.edu/UMETransitions.
References
In re Estate of Feldmann, 2017 ND 255 (2017).