Iowa Court Reviews Will Dispute Involving Farmland
On March 17, 2021, the Iowa Court of Appeals issued an opinion regarding a will dispute. The will, among other things, created an option for certain beneficiaries to obtain ownership of the farmland subject to various terms and restrictions. Because the will gave the probate court authority to determine the reasonableness of the terms for the transfer of farmland, the court ruled that the probate court properly exercised its authority in resolving the beneficiaries’ disputes.
A farmland owner passed away in 2015. Her will named her three children—Keith, David, and Linda—and six grandchildren as beneficiaries. The will distributed $30,000 to David if he survived the testator. It then distributed half of the remaining residue to her three children in equal shares and the other half of the residue to her six grandchildren in equal shares. David passed away in 2017 leaving his surviving spouse as the sole beneficiary of his estate.
The testator created two will provisions to ensure that her farm continued to be owned by family members currently engaged in farming. First, the will allowed Keith’s four children—the “Farming Grandchildren”—to purchase the entire farm within three years of her death. If they sold the farm in the following 15 years, however, any profit from the sale would not go to the Farming Grandchildren, but would be split equally among the testator’s three children per stirpes. The will also created an option for Keith to take his share of the inheritance in the form of farmland instead of receiving his share in the same way as his siblings.
Both the Farming Grandchildren and Keith provided timely notice to exercise their options under the will. Keith, as the executor, filed a final report and attached a proposed real estate installment contract to initiate the transfer of farmland to the Farming Grandchildren and himself. David’s surviving spouse, Linda, and Linda’s two children filed numerous objections to the final report. The parties entered into a settlement agreement, but the probate court found it was not enforceable because two of the Farming Grandchildren did not participate.
After the settlement discussions, Keith filed an amended final report and real estate installment contract. To resolve the objections, the probate court held a hearing and entered an order 1) preventing the sellers, the non-Farming Grandchildren beneficiaries, from participating in the management of the farm during the contract term, 2) placing a lien on the property in favor of the sellers, until the contract was paid in full, and 3) barring Keith, if he exercised his option, from receiving a share of penalty if the Farming Grandchildren sold the farm early. Many of the beneficiaries appealed and cross-appealed.
Real Estate Installment Contract Terms
Two of the Farming Grandchildren appealed the probate court’s order imposing different terms than those in the first proposed contract and claimed that the will gave Keith, as the executor, the authority to sell and manage the farm as he saw fit.
In rejecting their claims, the court found that the probate court was within its authority to establish reasonable terms for the sale of the farm under the requirements of the testator’s will.
The court explained that while the will did give the executor the right to sell or lease the property, the executor did not have total authority sell the farm as he pleased. A court has broad jurisdiction to determine probate matters. This includes the authority to determine the reasonableness of the terms of the real estate contract in the final report. The will directed the executor to establish reasonable terms and conditions for the potential farmland sale and gave the probate court the authority to resolve any disputes regarding the reasonableness of the sale. Although a court cannot modify contracts, it can review an executor’s actions to ensure the terms of the will are followed.
The two Farming Grandchildren also claimed that the lien on the farmland impacted their 1/12 residuary interests. The court disagreed, however, ruling that the lien did not affect any residuary interests, but only the Farming Grandchildren’s option to purchase the farm under the “reasonable terms and conditions” imposed by the will. Therefore, the court found that the probate court did not error in imposing the lien on the farm to protect the other beneficiaries.
Keith’s Interest in Early Sale of Farm Penalty
Keith also appealed the probate court’s order barring him from receiving part of the potential penalty required to be paid by the Farming Grandchildren to the other heirs if they sold the property within 15 years. Keith claimed that any penalty must be distributed in equal shares according to the will. The court disagreed. Because the will mandated that Keith would not receive his inheritance in the same way as his siblings if he chose to receive farmland (instead of a monetary share), the court affirmed that Keith forfeited his right to any future penalty.
David’s Estate as a Beneficiary
Finally, the court considered whether David’s death barred his estate from inheriting under the will. Under the will, if any of the testator’s children “shall not be then surviving such child’s share shall be distributed to such child’s descendants per stirpes, or if none are then surviving, then added to shares of any other children as aforesaid.” The court determined that “then surviving” referred to the time of the testator’s death, not the time when the Farming Grandchildren exercised their option to purchase the farm. Because David survived the testator, his estate was entitled to his share of the inheritance.
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