The heirs to inherited property may not agree among themselves how to deal with the property. A partition action is a lawsuit to divide and/or sell a jointly owned property. Property that must go through probate processes is part of an inheritance within an estate when it passes on to the heirs. Sometimes, a different procedure may pass on the estate assets, but when a will or no legal document exists, the heirs will receive property and estate holdings through the courts. If the state requires a certain person to inherit based on who is alive after the estate owner dies, disputes often arise once the property awards push through. Then, the inherited home may need to divide through partitions for the different affected individuals from the estate or family.
After the probate completes and the heir receives the home, other connected parties may fight over the property. When this occurs, and a valid legal claim exists for the others, the courts may partition or force the individuals to partition the land or building. This would cause the home to become split into pieces, or the heir may need to sell the whole home and split the proceeds. Each valid party involved in the dispute would receive an equal or partial portion of the partitioned whole. Usually, these processes occur with land. However, when a building resides on the land, it is either sold or split so that part goes to one party and the other remains with the original person attached.
Probate and Inherited Property
Estate owners may have documentation to provide for his or her heirs. Through a will or other legal paperwork, the estate owner may ensure that the property passes to the heir appropriately and legally. Once the probate courts tie up the land or home, the heir needs to wait several months or years until the matter clears and the building or acres are free to live on and move in. At the point that probate finishes, the person will inherit the property and have all rights and privileges that come with it. It is then that he or she may need to think about others that may have a hold on the inheritance. When more than one heir exists, the primary property or residence of the estate owner may only pass to one person. The others could inherit different holdings or assets. Sometimes, if the heirs are close, the property may remain in both names. However, when disputes transpire between these individuals, they may seek a judgment through the courts. The state judge will then render a decision on the circumstances, and a partition could become the solution. By dividing the equity in a house, sectioning off a larger manor or cutting up the tract of land, all parties may receive satisfaction in the dispute.
The Complication with Partitions
When the property is a home, partitioning the land or building may represent a problem when it cannot divide equally or evenly. This could lead to the heir selling the property to ensure all other interested parties receive their share per the ruling from the courts. If the courts do not rule in favor of other potential heirs, the person that received the house may still partition the property to ensure that his or her family still receives an appropriate share of the inheritance. This may require selling some of the land or separating the family members in the house. If the home has enough space, they may all live without conflict inside.
When no peaceful resolution is available, the heir may need to put the property up for sale. He or she may seek to build or buy a new home from the proceeds. However, it is important to consult with a lawyer before finalizing any sale. The family’s hold on the building may have a weak claim, and if the heir wants to fight the partitioning, he or she may need to take siblings or other family members to court.
Partition By Sale
A partition by sale is a particularly effective course of action for beneficiaries of an estate who cannot agree on what to do with a house they jointly inherited. Often, a brother and sister will inherit the family house from their deceased mother. Sister had been living with mom for the last couple of years caring for her, prior to her death. Now that mom has passed, sister wishes to continue living in the family home. However, brother, having a family of his own, wishes to liquidate his portion of the inheritance by selling the house. It is a story as old as the parable of the prodigal son. One beneficiary wants to keep and use the family house exclusively, while the other wishes to reduce his inheritance to cash for use as he sees fit.
When applied to this situation, the partition by sale suit is a particularly effective tool for settling the dispute. Under the pressure of the partition suit, the siblings have four options available to them: Sister can buy out brother; Brother can buy out sister; Brother and sister can agree that sister will continue living in the house; and the house can be sold to a third party. If brother and sister cannot agree, he always has the ability to petition the court to force a sale of the house and division of the proceeds.
Suit For Contribution
In addition to a forced sale, the partition suit permits one party to seek contribution from the other for expenses associated with maintaining the property. For example, if sister had been maintaining the property and paying property taxes and insurance on the property prior to its sale, she can make a claim for contribution from her brother for his portion of those expenses, which would then be deducted from his share of the proceeds. Thus, the proceeds can also operate to balance the equities between the parties. Notably, the contribution amount may exceed the value of a party’s interest in the property. For example, assume that the house sold for $100,000 and had an outstanding loan balance of 50k. After the outstanding loan is satisfied from the proceeds, brother and sister would each be entitled to $25,000. However, sister may allege that brother owes $30,000 in contribution for his portion of property repairs, which she incurred prior to the sale. The $30,000 in contribution would exceed his $25,000 equity interest. Thus, assessing the following three factors is imperative when considering a partition by sale suit to settle a property dispute: the value of the property; any debt against the property; the likelihood and amount of any contribution claim by other parties with an ownership in the property. A party considering a partition action should consult with an attorney to develop a strategy and to set out the possible upside as well as the downside in pursuing such a remedy.
How Property Ownership Impacts Estate Planning
Property is titled according to one of three basic concepts: sole ownership, joint ownership, or title by contract. Assets can only be titled in one of these three ways, but each can include one or more variances.
Sole ownership means that a property is owned by one person in their individual name and without any transfer-on-death designation. Examples include bank accounts and investment accounts held in one individual’s name without a “payable on death,” a “transfer on death,” or an “in trust for” designation. A property is titled in one individual’s name in “fee simple absolute” in real estate. The individual owns 100% in their sole name, with title being transferred to someone else at the time of the owner’s death.1
Joint Ownership With Right of Survivorship
Joint ownership can come with right of survivorship or without it. Joint ownership with right of survivorship means that two or more individuals own the account or real estate together in equal shares. The surviving owner or owners continue to own the property after one owner dies. They automatically inherit the deceased’s share by operation of law.
For example, John and Mary would each own half of a property if they were joint tenants with Joe, and if Joe were to predecease them. John, Mary, and Joe would each have owned 33.3% before Joe’s death. John and Mary would each inherit 16.65% ownership from Joe, so then they would own 50% each.
No owner can sell the property or encumber it with liens or mortgages without the consent of the other(s), although they can sell or encumber it jointly.
Tenancy by the Entirety
Tenancy by the entirety is a special type of joint ownership with right of survivorship between married couples. It’s recognized in most states that don’t observe community property law, but not all. Each spouse has an undivided interest. Neither spouse can transfer, encumber, or bequeath the property without the other’s consent.
Community property is another special type of joint ownership reserved for married couples in nine states: Arizona, California, Idaho, Louisiana, New Mexico, Nevada, Texas, Washington, and Wisconsin. This type of ownership does not necessarily come with right of survivorship. Spouses can leave their 50% ownership to anyone they want when they die if they bequeath it in their estate plan, but the property will go to the surviving spouse if they fail to do so.
Tenants in Common
Joint ownership without right of survivorship is typically referred to as owning the property as “tenants in common.” Two or more individuals own a specific percentage of the account or real estate, but not necessarily equal shares. One individual might own 80%, while a second individual owns 20%. Joint co-owners can pass their shares to beneficiaries under the terms of their wills or other estate plans in this type of deed. Probate would be necessary to transfer the asset.
Title by Contract
Title by contract refers to assets that bear a beneficiary designation that names an individual or individuals to receive them after the owner dies. This type of title includes bank accounts or investment accounts that have a “payable on death,” “transfer on death,” or “in trust for” beneficiary designation. Title by contract also includes life insurance policies that have designated beneficiaries, as well as retirement accounts such as IRAs, 401(k)s, and annuities. Life estate deeds designate a remainder man to inherit real estate in this way, and transfer-on-death or beneficiary deeds also have designated beneficiaries for real estate.
Where Property Goes After the Owner’s Death
Property is either a probate asset or a non-probate asset, depending on how it is held.
Non-probate assets don’t have to go through the court-supervised probate process after the owner dies, because there’s already a means in place to move the asset from the ownership of the deceased to living individuals. Other owners or beneficiaries take control of the deceased owner’s assets by operation of law simply because they survive the deceased owner. Non-probate assets include assets owned jointly with right of survivorship, including tenancy-by-the-entirety property and some community property. They include any type of asset that bears a beneficiary designation to transfer it after the owner dies.8
When Assets Go Through Probate
As the name suggests, probate assets must go through a court-supervised probate process after the owner dies, because probate is the only way to get the asset out of the deceased owner’s name and into the names of the beneficiaries. Probate assets include sole-ownership property, tenants-in-common property, or any other asset owned jointly without right of survivorship.
Who inherits probate assets depends on whether the owner has left a last will and testament. The terms of the last will and testament should dictate beneficiaries if the owner left one. Otherwise, the intestacy laws of the state where the owner lived at the time of death will determine who inherits the owner’s assets, as will the intestacy laws of any other state where the owner owned real estate. Laws for intestate succession typically begin with the surviving spouse, then consider direct descendants if any. More distant relatives rarely inherit unless the deceased’s spouse or children are no longer living, or if the deceased never married or had children.