Land Locked
One of the most punted and procrastinated conversations between siblings is the question of what to do with the old homeplace. Mom and Dad worked forty years to keep the farm (or timber tract, or future beach house lot) intact, but now the siblings hold title together as tenants-in-common. Cue the soundtrack from “The Good, the Bad, and the Ugly.” If Brother A wants to sell, Brother B wants to hold, and Brother C wants to turn it into a new subdivision, stalemate sets in.
Partition Actions
In North Carolina, any one of them can pull the pin on the legal equivalent of a hand-grenade called a partition action. This is where the court steps in and says “Fine—if you kids can’t share the toy, nobody gets it!” Courts prefer to slice the land into separate tracts (a “partition-in-kind”), but if doing so would cause “substantial injury” to the value of the property, the clerk orders a sale in lieu of partition—typically a public auction where the property goes to the highest bidder and the cash is split by ownership percentages.
It’s important to note that, generally speaking, there is no defense to this action. In our scenario, Brother A who wants to sell holds the best hand. Even if Brother A lives 300 miles away and has never paid a dime towards the property. He can force the property to be sold with a partition action. Oftentimes, the best one can do in response is request reimbursement for certain “carrying costs” such as upkeep, mortgage payments or property taxes.
Why Forced Sales Sting
Partition sales almost never yield market-value prices and can be financially ruinous for families who hoped to preserve land as an inheritance. Adding insult to injury, after discounting the sales price by 10-30 percent, you’ll then need to subtract attorney fees, sales commissions for the court-appointed commissioner (~5%), court costs, and maybe a survey—or two. Suddenly, your one-third share feels more like a fifth.
How to Avoid the Train Wreck
If you own a home or large acreage tract of land with your spouse, this issue likely won’t arise until after both of you have passed. But if you are unmarried or widowed and have multiple children, the reality is that your children will ultimately wind up sharing the property with undivided interests—unless you provide otherwise.
For residential properties, homeowners essentially have 3 options:
Leave the property to all of the children (this is the default even if you do nothing). But even if you trust your children to make the right decision, remember that their own children may not be as agreeable with their uncles, aunts, and cousins. Eventually, the property is going to be sold. The question is to who?
Direct the property be sold in your estate plan. This is particularly ideal when the children have all moved away and don’t have a particular personal or financial connection to the property. You could also add in a “right of first refusal” for a specific child if he or she has expressed interest.
Give a specific child an option to purchase. Similar to Number 3, you can direct in your estate plan that a specific child has a specified amount of time (e.g., 6 months) to exercise an option to purchase the property from the other children.
For large, undivided tracts of farmland or timberland, you really should consider hiring a surveyor to divide the tracts so that they can be equally distributed to your heirs. For example, if you have a 100-acre tract with 4 heirs, divide the tract into 4 separate tracts, keeping in mind that not all acreages have the same value. An acre with road frontage may be worth 10 acres of timberland depending on the location.
Final Thought
The best time to hash out who gets the house and who gets the farm is long before anyone lawyers up or calls an auctioneer. A simple will can keep the courthouse from carving up the homestead via partition proceedings. A revocable living trust can avoid the courthouse altogether.
P.S. If you know someone who'd appreciate this—or someone who really should—feel free to forward it their way.