My FAMILY Can be a Problem in My Land Ownership?
I'll get right to it...sometimes family members can be a big problem to your land ownership!
That's right. The land you inherited from the passing of a family member can turn out to be a more of a mess than a blessing if you aren't proactive. And
believe me, many families are anything but proactive when land (or other types of real estate) pass down to heirs. Here's why in a nutshell...
Please keep in mind that I'm not a lawyer, and I'm not dispensing legal advice here. I'll speak in generalities to outline the basic problems and solutions.
Your job is to go to your family and / or a qualified attorney in your state to get specific solutions to your situation.
Many people come into possession of land when a family member dies and passes the property along...either directly through the intent of a will or,
when no will is present, by virtue of family ties. In either case, some immediate actions need to occur to help the recipients now handle their
First, as soon as practical, meet with all the heirs to discuss everyone's intentions and desires. Whether there are 2 heirs or 22, you can't assume
everyone has the same feelings as you about the inherited property. You may be surprised to learn that, in our experience as a land brokerage,
the "next generation" of land owners are often less attached to the property as the original owners were. Their interests, plans, goals, and views
will often be much different once the immediate grief of a passing loved one has faded. You need to discuss everyone's intentions and make a plan.
You may find that some of you wish to keep the property for personal use or to just keep it in the family. Others will want to sell the property
for cash to use to pursue their own personal goals. And others can be paralyzed and not know what to do. Who's right? Everyone. People are
different...even the people in the same family with roots connected to the same people, property, etc.
This is where the problems starts to manifest. You may all have different ideas and plans, but you're all limited and hindered by the others. It's
like having a pie where everyone has the right to a slice. Some may have rights to a larger slice than others, but everyone has a slice. The
problem? The pie isn't sliced up. Where is your slice? Where is John's slice? You may want to eat your slice, but it's not separated and on
your plate to do that. John knows people will pay good money for pie like this and wants to sell his slice...but can't because it's still part
of the entire pie. Susan wants to put whipped cream on her slice and give (donate) it to someone who's never had pie before. But she can't.
She doesn't know which slice is her's and no one else wants whipped cream on their's!
Land, family homes, etc. are a lot more valuable than that pie, but the picture is still the same. You have a pie...a property...but it's not sliced!
In Louisiana, this type of ownership is called an undivided interest, or owned in indivision. Other states call it tenancy in common. It gives
the owners - again, it may be 2 or 22! - the rights to use the entirety of the property as their own. But they can't sell the entirety.
They can only sell their portion. So what's the problem? I'll just sell my percentage ownership of the 40 acres to someone and go about
my business, right?
Yes, you can do that. But consider these two real issues. First, you'll likely have to sell it for a substantial discount from what the acreage
would be worth if it was already a separate "slice." You see, the buyer of your undivided interest will now be in same position you were
in. He'll be sharing an unsliced pie with another person or people. I can assure you, there are buyers who will buy undivided interests,
but never at full price! Second, you have now given a "stranger" legal rights to the family pie, and the rest of the "pie holders" will
likely be upset at you. Maybe you care, maybe you don't. They will, however, be unhappy. Do you want that?
The above scenario may be your only option. You may have discussed your desires with your family and they dug in and refused to sell the whole
pie or have it sliced up.
So, with all that said, here are some ways to deal with this. None are ideal unless you are fortunate enough to have a situation where you
all agree. But they are options to deal with this in the present before it gets even more complicated.
More complicated? How? I'm glad you asked! Remember the pie example from a minute ago? Now consider this...one of those family member dies.
His or her heirs now come to the table where the pie is. What if one or more of them have a child or children before the pie is dealt with?
Those newborn heirs are now part of the party. Now we have more heirs who can, and likely will - as time passes - give birth or pass away
(or both!) and the web just gets bigger and bigger.
I currently have a large land deal under contract where 15 heirs are involved. It was a struggle, to say the least, to get everyone agreed
and then signed up, but we did it. Our office record is 33 heirs on a single deal! I just closed a timberland tract where 4 sisters had
to sign the contracts and the deeds to sell, but they were all in agreement on every detail. I have a large tract listed where it took
4 heirs over three years to finally agree to sell and then agree what the asking price should be. I have many other actual examples
I could cite, but you get the point. With every added layer of new heirs, these deals would have gotten exponentially harder.
So, here are some things to consider before it gets harder for you and some options you can deploy if the plan isn't to keep the property in
some type of family company, trust, etc:
1. Meet and discuss the situation sooner rather than later so you and your family can make a plan or uncover where potential disagreements
will be. The passage of time, as you've read, doesn't make this go away or get easier. It can it more difficult.
2. Offer to sell your portion of the property to one of the others if they are intent on keeping the property. Sounds easy, right? Ha!
No, it is often a challenge to agree on a fair price for both of you. And even if you could agree on a price, many times the willing family
member-buyer just doesn't have the money to do it. The opposite option applies: Offer to buy out the other family members.
3. Sell your undivided interest to a third party. It's doable, but it does come with some potential negatives as we've discussed.
4. Have the pie divided. This is called a partition in kind when dealing with real estate. As a family, you can all agree who gets
what slice (using the pie example) and simply have an attorney draft the proper conveyance documents to put each of you in sole ownership
of your part of the property. Sounds easy. But like agreeing on a buyout price, it's hard to get complete agreement on who gets what.
Consider that a tract of land will likely have a variety of different challenges that will make it hard, if not impossible, to equally
divide. It's not as simple as dividing 40 acres by 4 heirs to get 10 acres each. Who gets the 10 acres with the road frontage? Who
gets the 10 acres with that pretty ridge? Who gets the 10 acres with the pond? Who gets that 10 acres in the slough? You see, it's
not just about math when you divide real estate.
I have appeared in court as an expert witness to testify as to the difficulty of dividing a tract in kind.
You will likely have additional costs of a surveyor and an appraiser in addition to the closing costs of the attorney or title company.
5. Force a partition. This is the "nuclear option." In Louisiana this is called a partition by licitation. The law in Louisiana
provides a mechanism for owners in indivision to be freed from an unwanted ownership partnership, if they choose. It basically
forces the property for sale to the public where anyone - including the current owners - can bid to buy all the remaining percentages
of ownership. When it's done, one person will walk away with 100% of the property. You can see why I call it the nuclear option.
Family members will likely be miffed...permanently! I'm not sure of all the variations state to state of this legal procedure,
so talk to your attorney if you feel you've exhausted all other options and want to see if this is for you.
6. Agree to sell. This is the cleanest way to handle real estate acquired through inheritance if a plan of keeping it doesn't
work for you. If everyone agrees and will sign all the required paperwork to market a tract (if using a land brokerage) and then
the subsequent contract and conveyance documents (when a buyer is found and then when it's time to close the sale), then use this
option. Liquidating the property just turns the real property into cash. Now everyone can use their cash as they please...and Thanksgiving
dinner can still be pleasant!
7. And one idea for the landowner who wants to pass land along...make a plan that fits your heirs' desires! All of the above
problems and potential for long-term family strife can be avoided with some planning BEFORE the funeral! Sorry for saying it so
callously, but my point is there is a better way.
If you own land or other assets that you intend to pass along, consider the people who will come into possession of these things. What
do they want? No, not what do you want for them to want, but what do they want? They may want the land...or part of it...and there
are things you, as the sole owner, can do now to see that this happens in a simple way. They may not have the same connection to
the property as you and will want cash. This doesn't make them bad people. It attests to their own uniqueness or situations in
their life and it gives them something that works better for them once you're gone. So, you could sell now and have the cash -
all or part - left to them. The point is, make sure the family assets are dealt with in a way that is best for the family.
I can tell you, much of the land we sell comes from the heir or heirs. Sometimes it happens after theyve plowed through many problems
and suffered through broker family relationships. If I could see a way to prevent this for my heirs, I think I would try. Consider
their desires in your plans for them.
Whatever you decide to do, do it soon. Get with you family and an attorney and settle it. Be sure any family land you keep, and
one day pass long - can be a source of pride of private ownership and not a legal mess that is just a source of frustration.
- By Pat Porter, Broker for RecLand Realty. His video blog is RecLandTalks.com.
Here is a link to a website that has some great information about estate planning as it relates to Louisiana. The simple language can help you see issues that may need addressed in your situation in your state, and you can learn what questions to ask your attorney where you live or own property. Check it out