Estate Planning

In farm estate and transition planning, we caution against leaving farmland to multiple heirs as co-owners on the deed to the property.  That’s because Ohio law allows any co-owner of property to seek “partition,”  a legal action asking the court to either sell the property and divide sale proceeds among the co-owners or, in some cases, to physically divide the property between co-owners.  If the goal of a farm family is to keep property in the family, co-ownership and partition rights put that goal at risk.  A recent case from the Ohio Court of Appeals illustrates how partition can force the unwilling sale of property from a co-owner of the property.

The recent court case didn’t involve farmland, but concerned a home and four acres of land owned jointly by an unmarried couple, each on the deed to the property as co-owners with rights of survivorship.  The couple separated and one remained in the home, but the two could not agree upon how to resolve their interests in the property.  That led to a court case in which one co-owner asked the court to declare that the other had no remaining interest in the property. The other co-owner disagreed and filed a partition claim asking the court to sell the property and divide sale proceeds according to each person’s property interest.  The trial court determined that each co-owner did have ownership interests in the property and ordered the property to be sold according to the partition law.

The trial court granted each party the right to purchase the property within 14 days before it would be sold, but neither exercised that right.  After an appraisal, the court ordered the property sold and also ordered payment of the outstanding mortgage.   That left the court with the challenge of determining how to divide the remaining sale proceeds according to each party’s interests in the property.  A complicated analysis of payments, credit card debts, a home equity loan, rental value, and improvements to the property resulted in a final determination that granted one co-owner more of the proceeds than the other.

Both parties appealed the division of proceeds to the Twelfth District Court of Appeals, unfortunately adding more cost and consternation to resolving the co-ownership problem.  The court of appeals noted that Ohio law grants a court the duty and discretion to apply broad “equitable” principles of fairness when determining how to divide property interests among co-owners in a partition proceeding. A review of the trial court’s division of the proceeds led the appeals court to affirm the lower court’s holding as “equitable,” ending the three-and-a-half-year legal battle. 

Ohio’s partition statute itself provides a warning of the risk of property co-ownership.  It states in R.C. 5307.01 that co-owners of land “may be compelled to make or suffer partition…”  While the purpose of partition is to allow a co-owner to obtain the value of their property interests, it can certainly force others to “suffer.”  If a co-owner can’t buy out another co-owner, the power of partition can force the loss of farm property.  As a result, family land can leave the family and a farming heir can lose land that was part of the farming operation.  That’s most likely not the outcome parents or grandparents expected when they left their farmland to heirs as co-owners.

Fortunately, legal strategies can avoid the risk of partition.  For example, placing the land in an LLC removes partition rights completely, as the land is no longer in a co-ownership situation—the LLC is the single owner of the land.  The heirs could have ownership interests in the LLC instead of in the land, so heirs could still receive benefits from the land.  The LLC Operating Agreement could contain rules about if and how land could be sold out of the LLC, and could ensure terms that would allow other LLC members to buy out another member’s ownership interests.  An agricultural attorney can devise this and other legal strategies to ensure that partition isn’t a risk to farmland or farm heirs.

Read the case of Redding v. Cantrell, 2022-Ohio-567.

Just when you think estate planning can’t get any more complex, we see a court case that proves us wrong.  The case below arises out of a dispute about a devise in a will to a beneficiary that died before the testator.  The central issue was whether Ohio’s anti-lapse statute protected the devise or if the devise lapsed and became part of the testator’s residual estate.  Believe it or not, the answer to that question lies within the word “means.”  Below we discuss the Third District Court of Appeals’ decision and how it reached its conclusion that the word “means” narrows the definition of devise in Ohio’s anti-lapse statute which may create an outcome for families and loved ones that the law or legislature did not intend.   

What it means to “lapse” and Ohio’s anti-lapse statute.  To understand the context and importance of this case, it helps to have a little understanding of Ohio’s common law lapse rule and anti-lapse statute.  Traditionally, at common law, a devise given to a person who predeceases the testator is said to “lapse.”  Devise, as used here, is a general term that is used to mean “the act of giving property by will.” This is an important distinction to make because, as you will learn later, the court had to interpret devise differently under Ohio’s anti-lapse statute.  

If you think about it, it makes sense that a devise would lapse when the beneficiary predeceases the testator because you cannot give property to someone who is already dead.  But under the lapse rule, all surviving heirs of that predeceased beneficiary also lose out on any assets that the beneficiary would have been entitled to.  Instead, the lapsed devise will either become part of the testator’s “residual estate” – where it will be distributed pursuant to the terms of a residuary clause contained within the testator’s will – or it passes through intestate succession.    

The common law rule of lapse has been criticized for the harsh results that it produces.  This is especially true when the lapse rule is applied to wills containing a devise to a child or close relative that predeceases the testator.  For example, Farmer A has no children and wants to give the farm to a family member that will continue the farming operation.  Farmer A’s siblings, however, hope that they get the farmland to sell for a premium price.  Farmer A decides to execute a will that gifts the farm and all associated assets to his nephew who has been helping him on the farm for the past few years.  Farmer A probably hoped or believed that after he was gone, his nephew was going to continue the farming operation and prepare his sons to take over the farm and keep Farmer A’s legacy alive.  However, Farmer A’s nephew was in a horrific tractor accident and passed away shortly after Farmer A executed his will.  Not long thereafter, Farmer A’s health declined, and Farmer A passed away.  In this scenario, the nephew’s sons would not be entitled to the farm because the lapse rule essentially voids the gift to the nephew. Instead the farm is likely to be passed to Farmer A’s siblings and will be sold. 

To remedy the harsh results, Ohio enacted its anti-lapse statute which can be found in Ohio Revised Code Section 2107.52. In the event that a beneficiary dies before the testator, Ohio law “protects” the devise and prevents the devise from being extinguished by the common law lapse rule.       

However, Ohio’s anti-lapse statute only applies in certain situations. First, a devise must be to: 

• a grandparent; 
• a descendant of a grandparent (descendants of a grandparent include your siblings, children, parents, aunts, cousins, etc.); or
• a stepchild of the testator  

If any one of the individuals listed above (also referred to as “devisees”) dies before the testator and leaves surviving descendants, then two situations can occur: 

1. If the devise is an individual devise (i.e. the devise is not to a group or class of individuals like “my children” or “my grandchildren”) a substitute gift is created in the devisee’s surviving descendants.  The surviving descendants are entitled to the property that the devisee would have been entitled to, had the devisee survived the testator. 
2. If the devise is in the form of a class gift, a substitute gift is created in the surviving descendants of any deceased devisee. 

Ohio’s anti-lapse statute requires any devise that fails to become part of the testator’s residue or “residual estate.”  If the devise cannot become part of the residue, then it passes by intestate succession.  This overview of Ohio’s anti-lapse statute is very brief and does not cover the many nuances that are contained within the statute.  If you have more questions regarding Ohio’s anti-lapse statute you can visit the statute here or contact a knowledgeable estate planning attorney.  

Case Background.  Now we get to the reason for this post. We will first discuss the background information of the case before diving into the court’s analysis and holding.  In 2019, Theodore Penno passed away leaving a validly executed will which read: 

ITEM II.        I hereby give, devise and bequeath my farm located in Butler Township, Mercer County, Ohio, and any interest that I may have in any farm chattel property to my brother, JOHN PENNO. 

ITEM III.       All the rest, residue, and remainder of my property, real and personal, of every kind, nature, and description, wheresoever situated, which I may own or have the right to dispose of at the time of my decease, I give, devise, and bequeath equally to my brother, JOHN PENNO and my sister, MARY ANN DILLER, absolutely and in fee simple, share and share alike therein, per stirpes. 

***

ITEM V.        I hereby appoint my niece, LINDA PENNUCCI and my niece, PHYLLIS DILLER, or the survivor of them, as Co-Executors of this my Last Will and Testament.  

John Penno, Theodore’s brother, passed away approximately three years before Theodore. The only sibling to survive Theodore was his sister, Mary Ann Diller.  John is survived by his two children, David Penno and Linda Pennucci.  Mary Ann filed a complaint for declaratory judgment and for construction of Theodore’s will.  Mary Ann argued that Theodore’s gift to John in Item II should lapse because John passed away before Theodore and the farm and farm property should become part of Theodore’s residual estate and be distributed according to the terms of Item III.  John’s children argued to the contrary and asked the court to find that Theodore’s farm and any farm property be distributed to them alone.    

The issue.  The issue in this case was whether the devise to John in Item II lapsed and became part of Theodore’s residual estate.  If the devise did not lapse, then only John’s children would be entitled to the farm and farm property.  If the devise did lapse, then the farm and farm property become part of Theodore’s residual estate and is then distributed according to the terms of Item III, which would entitle Mary Ann to some portion of the farm and farm property.  The probate court and the trial court found that the devise in Item II did not lapse, and John’s children were entitled to the farm and farm property alone.  Mary Ann then filed her appeal to the Third District Court of Appeals.  

The court’s interpretation of “devise” in Ohio’s anti-lapse statute.  At the center of this case is the definition of “devise” contained within Ohio’s anti-lapse statute.  The statute provides that: 

“Devise" means an alternative devise, a devise in the form of a class gift, or an exercise of a power of appointment.  

The word "means" is bolded and underlined here because it becomes very important to the court’s interpretation of the statute.  

Like the court, Mary Ann and her daughter, Phyllis, also thought the word “means” was very important.  They argued that the gift of Theodore’s farm and farm chattel in Item II was not a “devise” under Ohio’s anti-lapse statute and therefore, the gift to John lapsed when John predeceased Theodore.   Mary Ann and Phyllis reasoned that Theodore’s devise to John was a primary devise and Ohio’s anti-lapse statute only protects an alternative devise, a devise in the form of a class gift, or an exercise of a power of appointment.  The court eventually agreed with Mary Ann and Phyllis.  

The court explained the difference between a primary devise and the other meanings of devise contained within Ohio’s anti-lapse statute.  According to the court, the different definitions are as follows: 

• Primary devise – “is a devise to the first person named as taker.”
• Alternative devise – “is a devise that, under the terms of the will, is designed to displace another devise if one or more specified events occur.”
• Class gift – “is a gift to a group of persons, uncertain in number at the time of the gift but to be ascertained at a future time, who are all to take in definite proportions, the share of each being dependent on the ultimate number in the group.”
• Power of appointment – “is a power created or reserved by a person having property subject to disposition, enabling the donee of the power to designate transferees of the property or shares in which it will be received; esp., a power conferred on a donee by will * * * to select and determine one or more recipients of the donor’s estate.” 

The court examined the definition of “devise” as written in the statute and concluded that the definition only meant alternative devise, class gift, or power of appointment.  The court reasoned that the use of the word “means” conveys that the definition of “devise” in Ohio’s anti-lapse statute is intended to be an exhaustive definition and that the three kinds of testamentary gifts following the word “means” are the only kinds of testamentary gifts capable of qualifying as “devises.”  To help reinforce their conclusion, the court compared the word “means” to the word “includes” and concluded that “means” indicates that there is only one meaning whereas “includes” conveys the idea that there are other items that can be included in the definition of a word, even though they are not specifically stated.

Based on the court’s findings and conclusions, the court ruled that Theodore’s gift to John was a primary devise and was not protected by Ohio’s anti-lapse statute.  The court found that the gift to John must become part of Theodore’s residual estate or pass through intestate succession.  

The court’s ruling may seem counterintuitive to the purpose of the anti-lapse statute, and the court admitted as much. But the court reiterated the concept that it is not the court’s place to change the meaning of a statute as it is written – that obligation is left to the legislature and the legislature alone.  The court argued that if the court’s ruling is an unintended consequence resulting from how the statute is written, the legislature can change the words of the law to more accurately reflect the purpose of the anti-lapse statute.   

Conclusion.  This case demonstrates how one simple word can drastically change the meaning of the law and how that small word can affect a lot of people.  This case is also a great reminder about the importance of planning for all possible scenarios.  Many times, when we create our own estate plan, we must face the reality of our own deaths.  Facing that reality is quite uncomfortable.  But we must also come to terms with the even more uncomfortable possibility that our loved ones pass away before us.  This is why it is important to speak with an experienced and knowledgeable estate planning attorney as you plan for the future.  A good attorney will address not only the immediate needs you have for transferring your assets but will also help you plan for all possibilities so that your intentions are carried out.  

This case is also a good example of why we should update our estate plans when major life events occur.  The death of a beneficiary is definitely one of those instances where you should contact your attorney to update your estate plan so that there is no doubt your loved ones are taken care of when you are gone. 

To read the court’s decision, please visit the Ohio Supreme Court’s website.  

Did you know that the “wise old owl” saying is a myth?  Generally speaking, owls are no wiser than other birds of prey.  In fact, other bird species like crows and parrots have shown greater cognitive abilities than the owl.  An owl’s anatomy also helps dispel the myth because most of the space on an owl’s head is occupied by their large eyes, leaving little room for a brain. 

This week’s Ag Law Harvest brings you EPA bans, Ohio case law, USDA announcements, and federal case law which could make your head spin almost as far as an owl’s.  

EPA banning use of chlorpyrifos on food crops.  The EPA announced that it will stop the use of the pesticide chlorpyrifos on all food to better protect producers and consumers.  In its final rule released on Wednesday, the EPA is revoking all “tolerances” for chlorpyrifos.  Additionally, the EPA will issue a Notice of Intent to Cancel under the Federal Insecticide, Fungicide, and Rodenticide Act (“FIFRA”) to cancel all registered food uses of chlorpyrifos.  Chlorpyrifos is an insecticide used for a variety of agricultural uses, including soybeans, fruit and nut trees, broccoli, cauliflower, and other row crops, in addition to non-food uses.  The EPA’s announcement comes in response to the Ninth Circuit’s order directing the EPA to issue a final rule in response to a petition filed by opponents to the use of chlorpyrifos.  The petition requested that the EPA revoke all chlorpyrifos tolerances because those tolerances were not safe, particularly because of the potential negative effects the insecticide has on children.  For more information about chlorpyrifos and the EPA’s final rule, visit the EPA’s website.

Trusts aren’t to be used as shields.  An Ohio appeals court recently reinforced the concept that under Ohio law, trusts are not be used as a way to shield a person’s assets from creditors.  Recently, a plaintiff filed a lawsuit against a bank alleging breach of contract and conversion, among other things.  Plaintiff, an attorney and real estate developer, claimed that the bank removed money from his personal account and a trust account in violation of Ohio law and the terms of the loan agreement between the parties.  Prior to the lawsuit, plaintiff established a revocable trust for estate planning purposes and to acquire and develop real estate. This dispute arose from a $200,000 loan from the bank to the plaintiff to help establish a restaurant.  A provision of the loan agreement, known as the “Right to Setoff” provision, allowed the bank to “setoff” or effectively garnish all accounts the plaintiff had with the bank.  The setoff provision explicitly prohibited any setoff from any IRA or trust accounts “for which setoff would be prohibited by law.”  Plaintiff made all monthly payments but failed to make the final balloon payment on the loan.  Plaintiff argued that the bank broke the loan contract and violated Ohio law by taking funds from the trust account to pay off the remaining balance of the loan.  The court disagreed.  The court noted that under Ohio law, a settlor’s property in a revocable trust is subject to the claims of the settlor’s creditors.  A settlor is a person who creates or contributes property to a trust.  In this case, plaintiff was the creator, settlor, and sole beneficiary of the revocable trust.  Because of that, the court concluded the bank did not violate Ohio law when using the trust account to setoff the balance of the loan.  Additionally, the court found that the bank did not violate the terms of the loan agreement because a setoff from the trust account was not prohibited by law.  The court noted that Ohio law did not intend to allow a settlor who is also a beneficiary of the trust to use a trust as a “shield” against creditors.  Although trusts can be a useful estate planning tool, there are limits to what a trust can do, as evidenced by this case. 

Renewable fuel supporters file appeal on E15 summer sales. Corn farmers have joined forces with the biofuel industry (“Petitioners”) to ask the D.C. Circuit Court of Appeals for a new hearing on a ruling that struck down the EPA’s 2019 decision to allow year-round E15 sales.  Earlier this year, the same D.C. Circuit Court of Appeals issued an opinion that ruled the legislative text in the law supporting the biofuel mandate does not support the Trump administration’s regulatory waiver that allowed E15 to be sold during the summer months. In their petition, Petitioners argue that the D.C. Circuit Court made “significant legal errors.”  Petitioners contend that the court should rehear the case because the intent behind the nation’s biofuel mandate is better served by the sale of E15 through the summer months because it is less volatile, has less evaporative emissions, and is overall better for the environment than other fuel sources.  Petitioners also believe the court’s original decision deprives American drivers the choice of lower carbon emitting options at the gas pump.

Monsanto asks Supreme Court to review Ninth Circuit’s Roundup Decision.  In its petition to the Supreme Court of the United States Monsanto Company (“Monsanto”) asked the Supreme Court to review the $25 million decision rendered by the Ninth Circuit Court of Appeals.  In that decision, the Ninth Circuit held that the Federal Insecticide Fungicide and Rodenticide Act (“FIFRA”) did not preempt, or otherwise prevent, the plaintiff from raising California failure-to-warn claims on Roundup products and allowed plaintiff to introduce expert testimony that glyphosate causes cancer in humans.  In trial, the plaintiff argued that Monsanto violated California’s labeling requirements by not including a warning on the Roundup label that glyphosate, which is found in Roundup, causes cancer.  Monsanto argues that FIFRA expressly preempts any state law that imposes a different labeling or packaging requirement.  Under FIFRA, Monsanto argues that the EPA did not require Monsanto to include a cancer warning on its Roundup label.  Therefore, Monsanto maintains, that because California law differed from FIFRA, Monsanto was not required to follow California law when it came to labeling its Roundup product.  Secondly, the Ninth Circuit allowed plaintiff to present expert evidence that glyphosate could cause non-Hodgkin’s lymphoma in the general public and that glyphosate caused the plaintiff’s lymphoma.  Monsanto contends that the lower courts have distorted established precedent by allowing the expert testimony because the testimony is not based on generally accepted scientific principles and the scientific community has consistently found that glyphosate does not cause cancer in humans.    

USDA working to protect nation’s dairy industry.  The USDA’s Agricultural Marketing Service (“AMS”) has struck a deal with the European Union (“EU”) to satisfy the EU’s new import requirements on U.S. dairy.  The EU will require new health certificates for U.S. dairy products exported to the EU to verify that the U.S. milk used for products exported to the EU is sourced from establishments regulated under the Grade “A” Pasteurized Milk Ordinance or the USDA AMS Milk for Manufacturing Purposes.  Officials representing the U.S. Dairy Export Council and International Dairy Foods Association claim that the deal will allow U.S. producers to comply with the EU’s mandates while also satisfying the concerns within the American dairy industry.  The deal pushes back the EU’s deadline for new health certificates to January 15, 2022, to allow U.S. producers and exporters enough time to bring their products into compliance.  The USDA also announcedthat it is providing around $350 million to compensate dairy producers who lost revenue because of market disruptions due to the COVID-19 pandemic and a change to the federal pricing formula under the 2018 farm bill.  Additional details are available at the AMS Dairy Program website.

Tale as old as time.  An Ohio appeals court recently decided a dispute between neighbors about a driveway easement.  The driveway in dispute is shared by both neighbors to access their detached garages. Defendants used the driveway to access their garage and then the driveway extends past the Defendants’ garage onto Plaintiff’s property and ends at Plaintiff’s garage.  The dispute arose after Defendants built a parking pad behind their garage and used parts of the driveway they never used before to access the parking pad.  The original easement to the driveway was granted by very broad and general language in a 1918 deed, when the property was divided into two separate parcels.  In 1997, a Perpetual Easement and Maintenance Agreement (“Agreement”) was entered into by the two previous property owners.  The Agreement was much more specific than the 1918 deed and specifically showed how far the easement ran and what portions of the driveway could be used by both parties.  The 1997 Agreement did not allow for Defendants to use the portion of the driveway necessary to access their parking pad.  Plaintiffs argue that the 1997 Agreement controls the extent of the easement, whereas Defendants argue that the broad general language in the 1918 deed grants them authority to use the whole length of the driveway.  The Court found the more specific 1997 Agreement to be controlling and ruled in favor of the Plaintiffs.   The Court reasoned that the 1918 deed creates an ambiguity as to the extent of the easement and there is no way of knowing what the original driveway looked like or how it was used.  The Court concluded that the 1997 Agreement does not contradict or invalidate the 1918 deed, rather the 1997 Agreement puts specific parameters on the existing easement and does not violate any Ohio law.  The Defendants were found liable for trespass onto the Plaintiffs’ property and is expected to pay $27,500 in damages.  The lesson to be learned from all of this?  Make sure your easements are as specific and detailed as possible to ensure that all parties are in compliance with the law.

Ohio State Extension will host a virtual three part "Planning for the Future of your Farm" webinar series. The webinar series will span over three Monday evenings from 6:30 to 8:30 p.m. starting on February 15, 2021 and concluding on March 1, 2021. This workshop is designed to help farm families learn strategies and tools to successfully create a succession and estate plan that helps transfer the farm's ownership, management, and assets to the next generation. 

Topics discussed during this series include: 

• Developing Goals for Estate and Succession; 
• Planning for the Transition of Control; 
• Planning for the Unexpected; 
• Communication and Conflict Management During Farm Transfer;
• Legal Tools and Strategies;
• Developing Your Team;
• Getting Your Affairs in Order; and
• Selecting an Attorney

This workshop will be taught by members of the OSU Farm Office Team featuring Peggy Hall & Jeffrey Lewis, Attorneys from the OSU Agricultural & Resource Law Program and David Marrison, Extension Educator for Coshocton County. 

Because the workshop is online, you can invite your parents, children, and/or grandchildren to join you as you develop a plan for the future of your family farm, regardless of where they live in Ohio or across the United States.

Pre-registration is required. One hard-copy of program materials will be mailed to participating farm families. Electronic copies of the program materials will also be available to all participants. The registration fee is $40 per farm family. The deadline to register for the webinar series is February 10, 2021. You can register online at the "Planning for the Future of Your Farm" webinar registration page.  

In Summary: 

You can find more information about the webinar series by visiting the "Planning for the Future of Your Farm" webinar registration page. If you have any questions or concerns, please contact David Marrison by phone at (740) 622-2265 or email at marrison.2@osu.edu. 

We look forward to seeing you there!