Partitioning Inherited Property

Partitioning Inherited Property
The dream of owning a farm or ranch land is understandable. A couple works hard to buy a property. They farm it or ranch it for decades, involving their children and grandchildren in the process. Soon, homes are built and barns are erected. Most importantly, memories are created and the land becomes part of the family’s heritage. As husband and wife age, they dream of future generations continuing and building on that heritage. To that end, they leave the farm or the ranch in undivided interests to their children when they pass.
A generation or two passes and those that now own the land don’t have the common interests that their forbears did. One is committed to keeping the land and preserving the family’s heritage, while another is in need of cash and wants to sell it. Still, another lives far enough away that she can’t enjoy the property. So, she questions whether to keep or sell the property. Conflict arises as a result of the disparate goals.

What are the options to partition family land?

This story, or a variation of it, is common among land-owning families. Fortunately, there are options available to help resolve the dispute.
Here are four consider:
  • Create a limited liability company to facilitate ownership and management of the land. Each owner can contribute his or her interest in the property to the LLC in exchange for a commensurate ownership interest in the LLC. The members of the LLC can then decide how decisions will be made, how members will be compensated for their work on the land, and how cash shortfalls and profits will be addressed. An LLC can also be structured to provide for the transition of ownership to future generations.
  • Divide the land into parcels so that each owner receives a parcel that is equal in value to his undivided interest in the whole ranch.
  • Buy out those owners that no longer desire to participate in ownership or management of the land. A fair result can be achieved if the property is professionally appraised and the selling owner is paid his or her pro-rata share of the appraised value of the land. Bank financing is typically available to the owners that want to retain the land.
  • File a partition lawsuit. If the parties are unable to reach an agreement on how to resolve their differences, the law provides a remedy through the partition.

The Process of partitioning inherited property.

Partition of inherited property is accomplished under Chapter 23A of the Texas Property Code. When at least one owner of an undivided property acquires his interest by inheritance the law requires that the property be appraised. The parties are then afforded an opportunity to buy each other out of their interest in the property. If the parties can’t agree on terms, then the court first decides whether or not the property is capable of partition in kind. In other words, can the property be physically divided into pieces? This approach allows each owner gets a piece of the land that is commensurate in value with his or her undivided interest in the land.

If the court determines that the property cannot be physically divided, it can order the property to be sold and the proceeds divided among the owners according to their interest. If the property can be divided, then special commissioners are appointed by the court and they decide on how to divide the property among the owners.

Preserving land through estate planning.

Preserving family farms and ranches over multiple generations can present challenges. However, it can be done with good estate planning. However, in those situations where planning is absent, or joint ownership is no longer desired, there are options to consider in resolving the parties’ differences.

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