The legal relationship between Otis and his PEPper

Several people have said that they think they are Otises (or Otessas).  We realize that there are a variety of ways to make directives and we'd like to explore the options here.

We maybe might someday set up a SKIP non-profit to help connect Otises to PEPpers.  That way this program can live on forever.

Potential avenues to transfer your land to a capable PEP candidate:

1.  Find a PEPper that you like and put them in your will
    - you maybe don't even have to let them know they're in the will
    - might want to select back-up PEPpers in case your first choice is unavailable, already was gifted some land or can't accept your particular property
    - may want to suggest that the PEPper has X days to decide before the offer is extended to the next PEPper on the list

2.  Find a PEPper that you like and invite them to live on your property, then will it to them
    - gives you a chance to verify that they'll be a good fit for your place

3.  Have a non-profit decide which PEPper your land goes to when you pass.
    - least work for you, hands-off
    - requires more trust in the system
    - will need some funding for the non-profit to handle legal challenges and administration

Related options:

If Otis passes away and there aren't any suitable PEPpers:
 - should the property sit vacant until a PEPper becomes qualified?  Seems to not be a good option.  Who pays taxes/utilities/etc?  Vandalism issues?
 - should it wait for a qualified PEPper for X months and then be distributed to a second choice (like those darn grandkids).  
 - should it be liquidated and the proceeds go to help fund the SKIP non-profit or some other worthy cause.

Paul thinks that PEP4 is the gold standard for a capable, self sufficient permaculture homesteader.  I'm thinking a candidate somewhere in the PEP2 to PEP3 range would be good enough in many cases.  It can be up to Otis if he or she wants to set a minimum criteria for his heir


Questions for the lawyers/experts:

If we need a non-profit to handle connecting a PEPper to Otis's estate, how much legal risk is there to that non-profit?  
How much money would be needed to get it up and running and keep it solvent?  

Issues I envisage are as follows. Any legal exposure I cannot say, but would assume there would be and that said exposure would be State specific in most cases which could add to the legal fee burden if the non profit wants to operate in multiple states. Given the idea incorporates a PEP system of accreditation, legal liability could theoretically extend beyond the non-profit and its officers (IANAL, so take w/ grain of salt). If the PEP system is seen to violate the Equal Opportunity Act or associated State laws there could be issues there if someone filed a complaint.

For the land transfer as outlined, Is the idea of “Otis” putting the PEPer on the last will and testament a way of avoiding taxes, because it will not work if I understand estate law in most states. For example, let’s say Otis purchased his land for $15,000 in 1979. The current value as determined by the taxing authority is $200,000 (Otis pays a far lower assessment due to his long time ownership). If Otis sold the property, as his primary residence he probably would owe no taxes. If Otis leaves the property to an heir I do not think they would owe taxes, except, because the PEPper is not family Otis is limited in how much he can leave to someone not his family, potentially the PEPper would owe income taxes on the value of the property above the amount the law exempts. In many cases the best way transfer a property is to simply but the person(s) on the deed. Theoretically an Otis could put a PEPper on the deed in such a form so that the PEPper would receive the whole property, or a determined share of the property with the remainder determined by the last will and testament. The above cautions rgdg allowable gift tax exemptions applies still, but could be strung along multiple years. Also, since the transfer would likely be considered not arms-length, any grandfathered in tax reductions may be void going forward.

An area I have issue with in such a venture is the opportunity for abuse by any of the parties involved. Old folks can be notoriously distrustful and what seemed a good idea one year can become an anathema the next. Well intentioned Otis’s can make a lot of verbal promises along the way with the best intentions but when the rubber hits the road they will drop the project like a hot potato. Often someone’s land represents most all they own, essentially their retirement plan and trying to get them to sign away any rights, even if it makes sense and they agreed to it, in the breech they refuse. Health issues late in life can contribute to their fear and even debilitate them physically and mentally so their mental state comes into question. At that point expect a relative who you never heard of come out of the woodwork and challenge the will in probate court. Otis may unexpectedly change his will, leaving some or all of the property to the previously disfranchised nephew from another state. Even if the PEPper manages to defend their share of ownership, there is a good chance the property will have to be sold unless they can buy out the nephew.

Or perhaps the whole setup is agreed to by the nephew who respects Otis desire to leave his land to a PEPper. The PEPper take possession and two years after Otis dies sells the property to a developer. My understanding is trying to control what happens to your land after you die is exceeded hard. An individual can go to the Orphan’s Court and get a whole elaborate deal thrown out for any number of reasons. Even land left to a non-profit that promises to preserve it is no guarantee long term, as your land may be sold in order to allow the purchase of another lot.

Another area of concern is health care. If Otis falls and ends up in a nursing home for 6 months then expires, who pays? If the bill is unpaid then the property could be attached and foreclosed upon to satisfy the costs. A lot of these laws include look-backs of years.

Then there is the relationship between Otis & the PEPper. That seems like it could be a real issue, putting the PEPper in a position akin to indentured servitude. Otis could extract all sorts of favors from PEPper. That opportunity for abuse could go the other way and a resident PEPper could torture an enfeebled Otis who has become totally reliant on the PEPper who in this case turned out to have mental health issues previously undetected by the non-profit. That’s the way the nephew will frame it.

Non-Profits can limp along on almost nothing, but from what we see in the ability to get grants the low end of annual budgets skitters along around $10,000 to $20,000 a year.

Here is an article on efforts to match people to farms

James Whitelaw wrote:Given the idea incorporates a PEP system of accreditation, legal liability could theoretically extend beyond the non-profit and its officers (IANAL, so take w/ grain of salt). If the PEP system is seen to violate the Equal Opportunity Act or associated State laws there could be issues there if someone filed a complaint.

I think the non-profit would not be approving BBs or badges.  But there could be situations where an Otis says "Give my ranch to the best PEPper".  Then the decision about who is best could be called into question...

James Whitelaw wrote:For the land transfer as outlined, Is the idea of “Otis” putting the PEPer on the last will and testament a way of avoiding taxes, because it will not work if I understand estate law in most states.

 Good point, we weren't trying to avoid taxes but that's worth considering.  Maybe Otis would set his PEPper up with some money to offset the taxes...

James Whitelaw wrote:In many cases the best way transfer a property is to simply but the person(s) on the deed.

 Assuming you meant "put", that's a good one!

Regarding Otis changing his mind or needing expensive end of life care, that's what the will is for.  If he passes and the estate is solvent enough to give the land to his PEPper, yay.  If he changed his mind, or the estate is broke, no land for a PEPper.  That's where I think it's easier (in a way) for Otis to leave it to any PEPper meeting his requirements, however stringent or loose they are.  Keep in mind that there may be 50 Otises and 3 might pass this mortal coil in a given year.  As each one departs, their land may be offered to a specific PEPper that they took a shine to.  Or to any PEPper that was PEP3 certified.  Or something else.

James Whitelaw wrote:Then there is the relationship between Otis & the PEPper. That seems like it could be a real issue, putting the PEPper in a position akin to indentured servitude. Otis could extract all sorts of favors from PEPper. That opportunity for abuse could go the other way and a resident PEPper could torture an enfeebled Otis who has become totally reliant on the PEPper who in this case turned out to have mental health issues previously undetected by the non-profit. That’s the way the nephew will frame it.

 Sure, that could happen with any land share situation.  We're not intending to fix that so all parties need to always do their due diligence.

James Whitelaw wrote:Non-Profits can limp along on almost nothing, but from what we see in the ability to get grants the low end of annual budgets skitters along around $10,000 to $20,000 a year.

 Great to know, thanks!

James Whitelaw wrote:Here is an article on efforts to match people to farms

Thanks!

Mike Haasl wrote:Paul thinks that PEP4 is the gold standard for a capable, self sufficient permaculture homesteader.  I'm thinking a candidate somewhere in the PEP2 to PEP3 range would be good enough in many cases.  It can be up to Otis if he wants to set a minimum criteria for his heir

Mike, do you have a link to where the various levels of PEP are discussed? Is PEP2 just someone who has earned wood-level SKIP badges in a variety of categories? 1

You bet D.W.!  Here's the link to the best summary of all the PEP stuff - All about SKIP, PEP, Badges, BBs and More!

The part you're interested in is near the bottom of the top post.  

I love this post because it is prudent to have an open conversation about issues and be prepared.

The three issues I see here are greed, power inequity, and feels.  One or more of them often get wrapped up in lawsuits.

For example, my dad bought 20 acres in a distant corner of the Blue Ridge mountains.  It has a river that splits around a small island (say 1/3 acre).  There's no road into the property except for a right of way through a cattle farmer's land.  That right of way was established in 1810 so that two brothers and their dad could all access a mill that was on the small island.  It was a three-way mill (corn, wheat, cotton) which was rare at the time and brought them lots of business.

The brothers did not get along.  It came to a head when one brother (let's call him Biff) bashed in the skull of a hired hand in a dispute over a pig, which was the hand's salary. The other brother (Marty) took over the mill.  When the dad died he bequeathed half the land to Biff and the other half to Marty.

My dad bought the land from a descendent of Marty.  The cattle farmer is a descendent of Biff.

Biff Jr., after decades, suddenly puts a new padlock on the right of way gate and refuses to unlock it, while his gang of cattle hands happen to be casually hanging around with loaded shotguns.  My dad tries to bring a lawsuit but no lawyer in the county will take the case because they are intimidated by Biff Jr.

My dad has a copy of the original 1810 right of way grant so he decides to represent himself. Slam dunk right? But Biff Jr. has a brilliant counterargument: "weren't never a mill down there."

So now it is up to my Dad to prove that a mill existed.

He told them to follow him and the judge, Biff Jr., Biff Jr's lawyer, and Marty Jr. all pile into their cars in their Sunday best and drive through the 200yr old mill road to get to the mill site.  Dad points out the mill foundation and the rods where the wheels went.  

"Them's fence posts," says Biff Jr.

So my dad scrambles down the hillside in his three-piece suit, wades through the river, digs around in the muck, and finds a mill gear.  It is about four inches thick and the size of a car tire. With great effort he walks it up the hillside, until Marty Jr. rushes down to meet him and helps him get it to the top, with tears streaming down his face.    

The judge takes one look at the mill gear, puts his hand on my dad's shoulder, and says he finds in favor of my dad, and he doesn't want to hear anything about Biff Jr. giving dad any trouble.

Marty Jr. just sits there crying at the sight of the mill gear and explains that over the last 100 years or so, his family has doubted the whole story and whether the mill ever existed. 100 years erased the physical evidence and even the oral tradition got muddied by the two opposing sides. One side was invested in the absence of the mill, one side was invested in its existence.  But seeing this definitive proof rewarded Marty Jr.s faith.  It was unarguable proof that his ancestors did literally carve out a mill site and form this lucrative, impressive venture out of nothing.  

My dad gave Marty Jr. the mill gear. Now he has an enemy for life on one side and a friend for life on the other.

Hi Mike,

I am not a lawyer,  but I ran an NPO for over 25 years. NPOs are difficult to sue. One would have to show damages. Because the NPO would not be making the decisions, this would be darned near impossible.  Paperwork errors could be handled by an errors and omissions policy.  

I can hear you asking what if the Otis leaves the choice up io the NPO.  Make that choice fall back on the Otis.  For example, describe X ways for the  winner to be selected.  For the sake of argument :

A drawing of all PEP 3 grads who had completed their badges on Jan 1 in the year prior to the death of Otis.

A drawing of all PEP 2 grads currently not owning land who completed their badge prior to the death of Otis.

A choice described by the Otis. Such as as drawing of PEP 2 graduates with the middle name, on their birth certificate, of Huckleberry.

It is my understanding that a tool is being developed by SKIP to facilitate the match.

To reduce the risks, there could be a gag agreement worked into the process. While such things are difficult to enforce, risks are reduced to a degree.

There is another option.  Work out an agreement with an existing NPO to be covered under their insurance policy.  For example, a committee to handle SKIP could be set up as a church committee.  My organization had a similar relationship with a collective of churches operating a soup kitchen.    

Hi all - although this is my first reply, I am a long time lurker here. For the last year I have been completing the last leg of my landscaper/gardener apprenticeship in the employment of a permaculturist professional, in his 80's, in a large Western US metropolis. He has recently come out and declared to me that he wants for me to take his business over in the next 3-5 years, that he "doesn't want a pile of money" for it, and wants to keep working in some capacity until he entirely lacks the capacity for work or dies. As a result, I find myself in the position of PEPer but as the inheritor of an established business rather than an inheritor of land.

Leave aside the panoply of interpersonal issues which could arise from pride, stress, his family's sometime involvement in the business, unforseeable changes in priority and so forth which have been covered in other SKIP posts. Would anyone with experience inheriting a business from not-family step forward and speak to their experiences, good and bad, navigating the legal terrain of such a harebrained venture as this? It would be helpful but unlikely if you might speak specifically in an incrementalist sense, since he wants to ratchet down his - both involvement and his take of the profit - while we ratchet up mine, lets say by shifting over 25% year to year, starting this year.

While I am here, we have both expressed interest in converting the business into a cooperative or pirate-ship model, where the booty from jobs is split equally amongst workers, perhaps with set pay increases on the interval of 1 year during the apprenticeship period and lower - but still regular - pay increases after the completion of the worker's apprenticeship. Obviously some profit will have to be retained by the company to cover overhead. Will such a conversion take a great amount of time and resources, or will it only require to will to see it done? Can it be done at the same time as we shift business 'ownership' over to me, or perhaps just after?

Hi It sounds like you have a good relationship with your mentor - I hope it all works out for you both.

Obviously some profit will have to be retained by the company to cover overhead. Will such a conversion take a great amount of time and resources, or will it only require to will to see it done? Can it be done at the same time as we shift business 'ownership' over to me, or perhaps just after?

If you need to retain money to cover overheads, I think that's not profit, that is running expenses. Your mentor ought to have a fair idea of how much to set aside for expenses like new machinery and taxes (if applicable). I would have thought the conversation would be best before you take over, so you both know what you're letting yourselves in for. If you're setting up a not-for-profit then you may need legal advice on that, but otherwise much can be done with a mutually trustworthy situation.

It seems like a trust would be a good option for Otises. The big hurdle would be establishing trustees that would faithfully carry the purpose forward, but I think that might be easier than it seems as first.

If the trust was established with a clear purpose (something like maintaining the property as a working homestead for the benefit of the first PEPer as well as future PEPers) I'm fairly certain it could be set up so that PEPer #1 could inherit it as the beneficiary, without tax liabilities, and then transition in time to a/the trustee and identify then next person to take it over as the new beneficiary.

While I am here, we have both expressed interest in converting the business into a cooperative or pirate-ship model, where the booty from jobs is split equally amongst workers, perhaps with set pay increases on the interval of 1 year during the apprenticeship period and lower - but still regular - pay increases after the completion of the worker's apprenticeship. Obviously some profit will have to be retained by the company to cover overhead. Will such a conversion take a great amount of time and resources, or will it only require to will to see it done? Can it be done at the same time as we shift business 'ownership' over to me, or perhaps just after?

As the ownership shift to you an LLC might be a good step in the right direction.

Making the business model an employee owned LLC could be handled by the same lawyer who does the LLC.

Take into consideration that things happen so do something before something happens and the estate goes to probate court.

From a US-centric legal perspective, a trust is probably the most straightforward path. You would put the property into the trust and then fund the trust for any costs associated with maintaining the property (taxes/fees). You can write the trust in a way that the Otis enjoys the property for the length of their life before being bestowed onto the trustee. To be 'safe', you can have an independent trustee like a bank to keep an eye that the trust language is being followed but this may incur a nominal fee. If for whatever reason the trustee does not want to participate anymore, they can leave and a new trustee put into place.

State law will vary with the technicalities of how long trusts can exist for (The Rule of Perpetuities) so the trust may have an eventual end date. Some places have dynasty trusts so it is best to hash out the details with an expert if the length of the trust existence is important.

Anne and Nancy, thank you! Both of your responses give me some things to think on. I don't want to hijack the thread, since others are getting into the meat and bones of trusts. I will come back here after April and let you know how it goes.