Right to Partition

In some estate plans, parents will leave the farm or ranch to their children equally or to “share and share alike”.  This means each child receives an undivided interest in the real estate.  In other words, if there are three children, each child receives an undivided one-third share of the farm to “share” with the other two children.  The ownership of the farm then, is as tenants in common.

But what if the three owners of the farm cannot, under any circumstances, get along?  Are there any legal methods to dissolve the tenancy in common?  As tenants in common, each tenant possesses a right of Partition.  Partition is the ability to divide property.

A right of partition can either be voluntary or involuntary.  In a voluntary partition, each owner exchanges deeds, with all owners signing each deed, and each deed conveying to owe of the owners a specific parcel of property.

In an involuntary partition, one or more tenants in common petitions the court to divide the property.  The court made divide the property in-kind or by sale.  A partition in kind is when a court will try to physically divide the property between co-owners.  A partition in kind, however, will not occur if “great prejudice” to any of the owners occurs.  Great prejudice occurs when the court compares the amount an owner would receive if the property were divided in kind and then sold versus the amount received if the entire property sold and the proceeds distributed to all owners.  If the amounts are materially different, great prejudice exists.

The Partition article goes into further depth about the partition process and whether the right to partition may be restricted.  As always, if you have any questions, you are welcome to contact us!

First, some definitions.

When I was in high school and college, I was a competitive debater.  Every debate began the same: by defining the terms of the debate.  While we are not engaging in a debate on this blog, it is nonetheless useful to start with definitions.

As we more fully delve into estate planning on this blog, it is useful to keep definitions in mind.  The definitions are not difficult but nonetheless, it may be possible that these are terms that are not encountered in your day-to-day life.

Beneficiary:  This is the person who is is designated to receive benefits (such as money or income) from an insurance policy, retirement policy, a will, or trust.

Decedent:  The person who has died.

Estate:  This is all the property, both personal and real, that a decedent has at the time of death.  This is similar to a probate estate, which is all the property within a given jurisdiction.  Thus, if a decedent has land in both Nebraska and South Dakota, the decent has a probate estate in Nebraska and South Dakota.

Executor:  This is the person responsible for collecting all the assets of an estate, distributing all the assets to the proper beneficiaries, paying all claims made to the estate (e.g. final medical bills), paying taxes, and appearing at probate proceedings if required by the jurisdiction.  Also called a personal representative.

Heir:  A person designated to inherit some or all of an estate when the decedent dies without a will.  The difference between an heir and a beneficiary is the existence of a will or other estate planning document.

Intestate:  Also intestacy.  This is the state law that controls inheritance when a decedent dies without a will.

Joint Tenancy:  Joint tenancy, as opposed to tenants in common, allows individuals to transfer property with ‘right of survivorship’.  This means each each co-tenant shares an undivided, fractional interest in the property.  As each co-tenant dies, the undivided fractional interest passes to the remaining co-tenants.  Joint tenancy is most commonly found among husband and wives.  Each spouse has an undivided 50% interest in the property.  When the first spouse dies, his 50% interest passes to his wife.  The wife then has 100% undivided interest in the property.  Joint tenancy is a non-probate transfer of property.

Non-probate property:  Property that is not subject to probate.  This can include, but is not limited to, insurance policies, annuities, retirement accounts, property in trust, payable-on-death bank accounts, transfer on death deeds, and other such property that is paid directly to a beneficiary upon death from a source other than the decedent’s estate.  Non-probate property transfers automatically upon death and is not subject to probate proceedings.

Probate:  A proceeding in state court that is the administrative process for distributing an estate, whether by will or intestacy.

Tenants in common: Like joint tenancy, co-tenants share an undivided interest in property.  However, unlike joint tenancy, when a co-tenant dies, the undivided interest passes not to the other co-tenants but to those beneficiary/beneficiaries designated by the decedent.  For example, a husband and wife are tenants in common and each own a 50% undivided interest in property.  The wife’s will states that the beneficiary of her estate is the couple’s only child.  If the wife dies prior to her husband, her 50% interest does not automatically transfer to her husband (such as it would with joint tenancy), but rather, her 50% interest passes to her child.  Thus, the husband owns a 50% undivided interest and the child owns a 50% undivided interest in the property.

Testate:  Dying with a will.

Trust:  When property is held by a person or entity, called the trustee, for the benefit of beneficiaries pursuant to a written instrument known as a trust.  The trust articulates how the trustee can and should manage the trust assets for the beneficiaries.  There are many kinds of trusts and trust documents to list here.

Will:  A will is a document that details how a decedent wants his or her estate property to be distributed.  A will is subject to the probate process.  A will does not detail how non-probate property is distributed.