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You're asking for a family fight if no plan for land or property exists

by Curtis Lee | Contributor
April 5, 2022

If you want to ensure your family's land stays in your family when you pass away, you need to create an estate plan that includes a will. If you don't, your state's intestate succession laws could place the land under the ownership of tenants in common. Conflict among the multiple heirs who jointly own the property could result in the property being lost when it's ultimately sold to a new owner outside the family.

Unfortunately, death is a part of life. It's something we all must face, with the only question being when and how it will occur. Sadly, many people die unexpectedly with little to no warning. This is especially unfortunate when they haven't created an estate plan to deal with their property after their death.

If you're reading this right now, you're one of the lucky ones. You're lucky because you still have a chance to plan for how your property will transfer to others after you pass away. The primary tool for carrying out your wishes is the will (sometimes referred to as a “last will and testament”).

A will sets out how your property gets distributed to others when you pass away. A will also assigns an individual to carry out these wishes. Not having a will means that when you die, your property gets distributed according to state laws concerning intestate succession.

Sometimes these intestacy laws are adequate, but often they are not. This is particularly important when you're passing on land that could go to two or more heirs. In this article, we'll discuss why relying on state intestacy laws can lead to major problems, especially when it comes to passing on family real estate.

How do intestate succession laws work?

Intestacy laws exist on the state level. This means that every state has a different way of handling the property of someone who dies without a will. Generally, most states will pass on property to the deceased's relatives or family members in the following order:

  1. Children (if there's no surviving spouse)
  2. Spouse (if there are no surviving children)
  3. Parents (if there's no surviving spouse or children)
  4. Siblings (if there's no surviving spouse, children or parents)

Parents or siblings typically inherit through intestacy only when there is no surviving spouse or children. If the decedent is survived by both children and a spouse, they'll usually both receive some property, although the type and amount depends on the specifics of applicable state law.

One thing to keep in mind is that these laws only apply to probate property, or property that must go through the probate process. Certain types of property can avoid the probate process (and don't need to be mentioned in a will). This benefit can apply because of the nature of the property itself or because the property has been placed in an estate planning instrument, such as a revocable living trust.

The probate process is where a court (usually called a probate court) administers estates. This includes carrying out a decedent's wishes as set out in a will or applying applicable intestacy laws.

The problem with intestacy

Intestacy can be an issue for at least two major reasons. First, it can be expensive. If someone dies without a will, the probate court will usually appoint someone to oversee the transfer of the deceased's property. This isn't cheap and can deplete the assets of someone's estate.

Second, it can result in property going to people the decedent never intended. It can also result in property once held by the family for generations – such as land – to be lost to a random stranger.

What can happen to real estate that's subject to intestate succession

If a landowner dies without a will and only has a single heir eligible to receive the family land (like a spouse or child), then a state's intestacy laws usually won't cause the family to lose the land. But dying intestate can create a very serious problem for anyone who wishes to keep a piece of real estate in the family when there are two or more heirs eligible to receive the property.

The exact process will depend on the state, but what typically happens is that real estate not subject to a will, but soon-to-be owned by two or more people (also known “heirs' property”) will get passed down to all of the eligible new owners. Specifically, there will be a type of joint ownership established called tenancy in common (or joint tenancy in common). A tenancy in common is often the default type of joint ownership under many state intestacy laws.

Tenants in common explained

A tenancy in common is a form of joint ownership in which the joint owners have the same (or sometimes different) amounts of legal interest in the property. Yet all the owners still have the equal ability to use the property.

For example, let's say you have a house owned by Mary, Peter and Paul as tenants in common. Mary has a 50% interest in the property while Peter and Paul each have a 25% interest in the property. Despite their different ownership interests, all three have equal right to live in house.

After one of the tenants in common dies, their legal interest passes on as a regular piece of probate property would (by will or by intestacy laws).

Why a tenancy in common is often bad for heirs' property

A tenancy in common can be devastating for heirs' property because of the difficulties it can have on the owners trying to use the property. The primary reason is that there's no single person with legal authority to make decisions about a property. In other words, it can lead to “death by committee.”

For instance, what if the property is a small home, but all four joint tenants in common want to live there with their families? Or imagine the land is a farm, and Person A wishes to farm it alone, Person B wants to sell it, and Person C wants to lease it to a commercial farmer. In this scenario, none of these options are possible unless all the owners agree on what to do.

OK, let's assume all the owners are in the same page regarding how to use the property. Then who is responsible for maintaining the property? This includes not just yard work or completing small repairs on the property, but it can also include paying the property taxes.

If the property has a significant fair market value, these could be substantial and even if distributed equally among the co-owners, they could be too high for one or more of them to afford. As a result, the owners who can't afford to pay their fair share of the property taxes want to sell the property. But unless all owners agree, this won't happen. What often happens in these disagreements is that the land gets partitioned (more on that in a minute).

Another potential problem with heirs' property is when the owners want to take advantage of government programs for farm land, such as those offered by the U.S. Department of Agriculture (USDA). The USDA handles not just food safety inspections, but also disaster relief and lending programs for eligibly real estate.

But to be eligible, property must have a farm number. Until the passage of the 2018 Farm Bill, it was practically impossible for joint owners of heirs' property to get a farm number.

What is partition?

A partition refers to dividing up property based on each owner's legal interest in the property. Sounds simple enough, but the problem comes in when one of the owners doesn't want to divide the land or there's disagreement over the percentage in ownership interest each owner has in the property.

Someone handing over a pair of keys to a property due to partition

Partitions often take place in one of two ways. First, there's a partition in kind. This is where the court physically divides up the land based on each owner's legal interest. Second, there's partition by sale, where the land is sold to a new owner, but the proceeds from the sale get divided according to the owners' legal interests in the property.

Either type of partition can result in two major problems. One potential problem is when there's disagreement about partitioning the property or how it should take place. Depending on how well the owners get along and how much money is at stake, this could lead to expensive litigation that could last for years. If the litigants aren't careful, the legal fees could rival the fair market value of the property.

Note that a partition by appraisal is sometimes possible, but only if all the parties agree to it. Partition by appraisal allows one or more joint owners to buy out another owner, with the price paid to be decided by a court-ordered land appraisal.

One thing to understand is that a partition legal action can usually be started by any owner and for any reason. As long as that individual has an ownership interest in the property, they can ask a court to split it up. This is true even if their interest is just 1% and the owners who don't want to partition the land have a 99% ownership interest. This seemingly unfair situation is based on the idea that people should have the legal right to sell their property if they want to.

Another potential problem is that it could result in the loss of the family property. If the heirs' property is subject to a partition by sale, then the new owner will most likely not be a family member. In this scenario, it'll be the failure of the tenants in common to agree that leads to “losing the family farm” not some else, like a bank trying to foreclose or an eminent domain action.

And if the real estate land gets subdivided by a partition in kind, then it's more likely that the family land will be lost to new, non-family owners. However, it won't happen all at once, but piece by piece. Realizing how a partition by sale can cause problems to family land, some states have modified their laws to adopt the Uniform Partition of Heirs Property Act (UPHPA).

The Uniform Partition of Heirs Property Act

The UPHPA is a law that provides a process for tenants in common to buy out any owners who want to sell. What happens is that the owner who wants to sell must first offer their portion of ownership to the co-tenants who want to keep the property.

If the co-tenants want to keep the property, they must pay fair market value (this is determined by the court) for the share of the co-tenant who wants to sell. If the co-tenants don't want to buy out the tenant who wants to sell, then the court will order a partition. Ideally, the court will try to implement a partition in kind, but if that's not possible, the court could order a partition by sale. But if a partition by sale is ordered, certain conditions must exist before the property can be sold.

The UPHPA doesn't apply in all states, but 19 states have enacted the UPHA or a law that's substantially similar.

The importance of estate planning

Booklet opening animation of our free requestable booklet The Importance Of Estate Planning

The UPHPA and the 2018 Farm Bill can help address some of the challenges that come with owning heirs' property as tenants in common. And in many situations, this type of joint ownership works great and is exactly what someone wants for their property when they pass on.

But there could be situations in which someone doesn't want the family property to be potentially lost or broken apart because of intestacy laws and/or a tenancy in common. The best way to avoid this is to create the appropriate estate plan.

It begins with preparing a will that sets out your wishes and selects someone to administer your estate when you pass away. Depending on your goals and the nature of the property, a will may or may not be sufficient. If you have other objectives, such as tax avoidance or conditions on how the land can be used, you might need to implement other estate planning strategies.

These might include creating restrictive covenants for the property and/or putting the land in a trust and assigning a trustee. Because your wishes (as well as the real estate) are unique, an ideal way to create an estate plan is to speak with an experienced Legacy Plan Network Attorney.

In summary

If you own family land and you wish to keep it in your family when you die, you need, at the very least, to create a will. This will outline how you want the property to be transferred and who you want it to go to. This is important to avoid the application of intestate succession laws, which will often default to create a joint tenancy in common if there are multiple heirs to your property.

Land owned by joint owners through a tenancy in common can have problems if the owners want to apply for USDA programs or there's disagreement in how to use or dispose of the property. There are legal options available to address conflicts among co-tenants, but these can often lead to the family losing ownership of the property. While there are special laws in place to deal with these potential issues, the best way to prevent them is to create an estate plan, ideally with the help of a Legacy Plan Network Attorney.

How do I create an estate plan?

There are numerous options and scenarios to consider when developing an estate plan that protects your legacy and achieves your objectives, and important decisions should be made with the advice of qualified lawyers and financial experts. Membership with Legacy Assurance Plan provides members with valuable resources and guidance to develop comprehensive estate plans that take life's contingencies into consideration and leave a positive impact for generations to come. Legacy Assurance Plan members also receive peace of mind that a team of trusted, experienced professionals will assist them in developing legal, financial and tax strategies that will meet their needs today and for years to come through periodic reviews.

This article is published by Legacy Assurance Plan and is intended for general informational purposes only. Some information may not apply to your situation. It does not, nor is it intended, to constitute legal advice. You should consult with an attorney regarding any specific questions about probate, living probate or other estate planning matters. Legacy Assurance Plan is an estate planning services company and is not a lawyer or law firm and is not engaged in the practice of law. For more information about this and other estate planning matters visit our website at legacyassuranceplan.com.

Phone - 844.445.3422
Email - info@legacyassuranceplan.com
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