Owning farmland is one of the largest investments many Iowa families will ever make. However, protecting that investment involves more than maintaining productive soil and collecting farm income. Decisions about estate planning, property ownership, leases, and legal agreements can have lasting financial consequences.
Whether you are buying your first farm, managing inherited farmland, or preparing to transfer property to the next generation, understanding common mistakes can help protect your investment.
During a recent episode of the Farm for Profit Podcast, agricultural real estate attorney Jim Egleston discussed several legal and financial challenges facing farmers and landowners. His insights highlight why planning ahead is important for protecting farmland and preserving family wealth.
Here are seven mistakes Iowa farmland owners should avoid.
1. Failing to Plan for the Next Generation
One of the biggest mistakes farmland owners make is waiting too long to develop a succession plan.
Many farms have been owned by the same family for generations. However, transferring that property becomes complicated when multiple heirs have different goals.
For example, one child may want to continue farming while the others would prefer to sell their interests and receive the proceeds.
Without a clear plan, these disagreements can create financial pressure and damage family relationships.
In some situations, disagreements between co-owners lead to a partition action, where a court may order property to be divided or sold.
What should farmland owners do?
Start discussing succession planning before it becomes necessary. Determine which family members want to continue farming, which prefer financial compensation, and how ownership can be structured to accommodate those goals.
Working with an experienced estate planning attorney can help families establish a plan that protects both the land and their relationships.
2. Leaving Farmland to Multiple Heirs Without a Clear Ownership Structure
Passing farmland equally to children or grandchildren may seem like the fairest approach. However, shared ownership can create challenges when heirs disagree about the property’s future.
During the podcast, Egleston described a situation involving farmland with numerous owners, including grandchildren who each held a small percentage of ownership.
Even though some individuals owned only a small interest, their involvement complicated efforts to reach an agreement about the property.
When farmland is owned by multiple individuals, decisions about selling, leasing, improving, or dividing the property can become difficult.
How can families avoid ownership disputes?
Rather than automatically dividing ownership among heirs, families should consider alternatives such as trusts, LLCs, buyout agreements, or other estate planning structures.
The appropriate arrangement depends on family goals, ownership interests, and applicable state law.
The goal is to establish clear expectations before disagreements occur.
3. Not Performing Enough Due Diligence Before Buying Farmland
Buying farmland is a major financial commitment. Unfortunately, some buyers focus primarily on the purchase price and overlook important property details.
Before purchasing farmland in Iowa, buyers should investigate the property’s physical characteristics, legal restrictions, and agricultural productivity.
Important questions include:
- Are there recorded easements affecting the property?
- Are there existing farm leases?
- What are the soil types and CSR2 ratings?
- Is there drainage tile, and who maintains it?
- Are there known drainage or water issues?
- Does the property have adequate legal access?
- Are there fences, buildings, or improvements requiring maintenance?
- Are there environmental concerns or abandoned structures?
- Are mineral rights or other property interests reserved by another party?
A property’s title history can reveal restrictions that may affect future use.
For example, an existing utility easement could allow infrastructure to be installed or maintained on a portion of the farm.
Buyers should also review available soil information, farm records, and property boundaries before closing.
Why does due diligence matter?
Identifying potential issues before purchasing farmland allows buyers to better understand what they are buying and make informed decisions about value.
4. Overlooking Easements and Long-Term Land Agreements
Easements can have a significant impact on farmland ownership.
An easement generally provides another party with certain rights to use a portion of the property.
Common examples include utility easements, access easements, drainage easements, and pipeline easements.
Iowa farmland owners may also encounter agreements involving wind turbines, solar developments, and telecommunications infrastructure.
These agreements can provide additional income, but they may also create long-term obligations.
Before signing an agreement, landowners should understand:
- Where infrastructure may be installed
- How much land may be affected
- What compensation will be provided
- Who is responsible for maintenance and property damage
- Whether the agreement affects future agricultural operations
- What happens when the infrastructure is no longer used
- Who is responsible for removal and restoration
During the podcast, the participants discussed situations involving abandoned infrastructure and equipment that remained on farmland after operations ended.
These examples demonstrate why landowners should carefully review agreements before granting long-term property rights.
A key consideration: Compensation is important, but understanding the long-term impact on the farm is equally important.
5. Assuming an LLC Is Always the Right Ownership Structure
Many farmland buyers wonder whether they should purchase property personally or establish a limited liability company (LLC).
An LLC can offer advantages, including separating certain business liabilities and providing flexibility for ownership transfers.
During the podcast, Egleston discussed using different entities for farmland ownership, equipment, and livestock operations.
The objective is to help manage risks associated with different business activities.
However, an LLC is not automatically the best choice for every farmland owner.
Ownership structures can affect taxes, financing, estate planning, liability protection, and future property transfers.
For example, transferring farmland into an LLC after completing a 1031 exchange requires careful consideration of the transaction’s tax requirements.
What should farmland buyers do?
Before purchasing farmland or changing how property is titled, consult an attorney and tax professional familiar with agricultural real estate.
The best ownership structure depends on the individual’s financial situation and long-term objectives.
6. Relying on Verbal Farm Lease Agreements
Handshake agreements have been part of Iowa agriculture for generations.
Many landowners and tenants have maintained successful relationships based on trust and mutual understanding.
However, verbal agreements can create problems when expectations are unclear or property ownership changes.
Common disagreements involve:
- Rental payment amounts and deadlines
- Responsibility for drainage tile repairs
- Fence and property maintenance
- Fertilizer applications and soil fertility
- Lease renewal and termination
- Improvements made by the tenant
- Responsibilities following a landowner’s death
Written leases help establish expectations and provide documentation for both parties.
They can also be important when tenants need to verify their farming arrangements for financing, crop insurance, or certain agricultural programs.
Why are written farm leases important?
A written lease does not eliminate every potential disagreement, but it provides a clear reference for the responsibilities of both the landowner and tenant.
This becomes especially important when farmland passes to heirs who may not have been involved in the original agreement.
7. Failing to Consider the Long-Term Financial Impact of Farmland Decisions
Farmland ownership decisions should be evaluated based on more than their immediate financial benefits.
For example, selling farmland and leasing it back may provide an owner with access to capital while allowing continued farming operations.
However, the long-term consequences depend on how the transaction is structured.
If the proceeds are spent without a plan, the former owner may lose the long-term financial benefits of landownership while remaining responsible for rental payments.
On the other hand, a carefully structured transaction may provide capital for debt reduction, business expansion, or other investments.
The podcast also discussed potential tax strategies involving soil nutrients, as well as alternative income opportunities such as conservation programs and carbon markets.
These opportunities may be worth investigating, but eligibility, financial benefits, and tax treatment vary.
Landowners should work with qualified professionals before relying on any particular tax deduction or investment strategy.
The important question is not simply how much money a decision generates today, but how it affects the farm’s financial position in the future.
Why Planning Ahead Matters for Iowa Farmland Owners
Farmland represents more than agricultural production. For many Iowa families, it is also a source of income, a long-term investment, and an important part of their family history.
Unfortunately, decisions made without adequate planning can create problems that last for generations.
Whether you are preparing to purchase farmland, reviewing a lease, or discussing how to transfer property to your children, understanding your options is an important first step.
Working with agricultural attorneys, accountants, and experienced farmland real estate professionals can help landowners make informed decisions.
Thinking About Selling or Transferring Iowa Farmland?
At Whitaker Marketing Group, we understand that every farmland ownership situation is different.
Some landowners are preparing for retirement. Others are managing inherited property, working through family ownership decisions, or evaluating whether now is the right time to sell.
Our team works with Iowa farmland owners to evaluate their property, understand current market conditions, and explore selling options that align with their goals.
Whether you are considering a traditional farmland listing, a public land auction, or another selling strategy, we can help you understand the market and the options available.
Contact Whitaker Marketing Group to discuss your farmland and learn how we can help you make informed real estate decisions.
Visit www.wmgauction.com or call 515-460-8585.
Disclaimer: This article is for general educational purposes and does not constitute legal, tax, or financial advice. Consult qualified professionals regarding your individual circumstances.
Source: Farm4Profit Podcast interview with agricultural real estate attorney Jim Eggleston. Watch the episode on YouTube.
