INDIANOLA, Iowa (DTN) -- Dying without a will or without properly structured farmland ownership can make life messy for heirs.
In many of those situations, the next generation owns the land as tenants-in-common, and if the owners can't agree on how to split the property, they can go to court for a judgment allowing partition by sale, the preferred settlement method in 39 states. This forced sale obligates the family members who want to keep the farm to have the winning bid at a public auction on land they partially own.
Eleven states have created an alternative to this process by passing the Uniform Partition of Heirs Property Act (UPHPA), which allows the tenants-in-common to cash out an owner who wants to sell at an appraised value without having to put the entire property up for sale. It establishes a clear preference for a physical division of heirs property, as opposed to partition by sale, and allows the court to consider factors such as heritage, historical or culture value of the property in deciding how to partition the land.
The new farm bill gives states with UPHPA an additional boost. Frequently, land inherited this way lacks a clear title because not all the fractional interest owners have been identified or legally established, said Thomas Mitchell, a professor at Texas A&M University School of Law that drafted the UPHPA law.
The new farm bill now allows the owners of "heirs property" as defined under the UPHPA to qualify for a Farm Services Agency farm number and to be eligible for many different USDA programs, including lending and disaster relief programs.
The definition of "heirs property" includes property that passes with or without a will. The main criteria is it must be family-owned and the ownership must be as tenants in common, not joint tenancy. Family-owned is defined as 20% of the ownership interest owned by family or 20% of the co-tenants are family.
The farm bill also gives farmers and ranchers who own heirs property in these 11 states priority consideration for legal assistance to help them restructure their legal ownership for greater stability and obtain clear title to their property.
Iowa is the only Midwest state with this law, which passed in 2018. Other states that have passed the UPHPA are Alabama, Arkansas, Connecticut, Georgia, Hawaii, Montana, Nevada, New Mexico, Texas and South Carolina.
"The two provisions in the farm bill that reference and draw upon the UPHPA may well encourage more states to enact the UPHPA into law in order to enable disadvantaged farmers and ranchers in those states to have the maximum benefits of the new farm bill provisions," Mitchell said.
Mitchell said he's worked on this issue for 20 years.
"It didn't make sense to me. If the property can be physically divided, why are we forcing sales?" he said.
In theory, the court would order a sale so all owners could maximize their wealth, Mitchell continued. "However, forced sales often resulted in a lower sales price and sometimes they put the family farm out of business."
Court-ordered, forced sales come into play when the tenant-in-common owners cannot agree on how to divide the property. Landowners who have worked with an estate planning attorney are generally not affected.
"Anybody who is wealthy or sophisticated about the law would know you would want to own real property as a group, what we call common property ownership, under an LLC or some other different ownership forms or agreements that are stable and secure," Mitchell said. "The people who tended to be negatively impacted because they did not own their family property under ownership forms that were stable and equitable were relatively disadvantaged."
He said there are a lot of farmland owners who could benefit from the UPHPA.
Iowa attorney Jim Nervig, who spearheaded the change in that state's law, said he was motivated to get the law changed because it didn't make sense that a minority interest could force a land sale and give the other owners no other recourse.
Property law is established by each state. It's also tradition-based and generally hard to change. But when Iowa's bill became referred to as "Save the Family Farm" bill, it sailed through the state legislature, said Nervig, an attorney with Brick Gentry law firm in Des Moines.
State legislatures in Indiana, Virginia and West Virginia have already introduced UPHPA bills so far this year.
In Illinois, "It is something that we are looking into," said Zach Schmidt, assistant director of state legislation with the Illinois Farm Bureau.
For more information on the Uniform Partition of Heirs Property Act (UPHPA), you can go to:
Elizabeth Williams can be reached at Elizabeth.email@example.com
© Copyright 2019 DTN/The Progressive Farmer. All rights reserved.