Handing the keys over to the next generation isn't simple.
Owning and managing land jointly with other family members can be very challenging. In our practice we receive many calls each year from individuals who are involved in difficult conflicts with their co-owners over the management of their ranch. These conflicts usually arise when property is held by the various owners as “tenants in common.”
“Tenancy in common” is a legal term that doesn’t have anything to do with leases or rent. It’s a type of joint property ownership. When multiple people co-own land as “tenants in common” each one has the right to possess and use the land as they wish. This sounds fine on paper, but this arrangement creates difficulty in the real world.
If one owner wants to run cows or put up a livestock building and the others want to grow soybeans on the same piece of land, an inevitable conflict arises because you can’t profitably do both at the same time.
This means all decisions about the management of jointly owned property must be made unanimously because each owner’s full right to occupy the land also works as a veto over any other use. A mere majority vote of the other owners does not legally defeat the objections of one owner because all owners have an equal right to possess the land. If the co-owners can’t reach a unanimous decision, a bitter stalemate ensues.
When joint ownership has become untenable because of a management stalemate, legal procedures are available to divide land into individual parcels among the various owners. In most states, any of the landowners might bring a legal action for partition of property. The court in charge of the suit might divide the land evenly by value among the owners. Alternatively, if the court determines an even division is impossible, the judge could order the land be sold at auction and the proceeds divided among the owners.
Obviously, this is not an ideal outcome. People rarely get what they want from a partition action, and they pay litigation expenses along the way. If the court decides that an auction of the whole property is an appropriate remedy, the family ranch could be gone in an afternoon.
But there is hope. Families can avoid much of this unpleasantness with early estate planning. As one part of the succession planning process, estate planning can be a difficult task to complete. Many people are tempted to throw their hands up and say “just divide it evenly,” and a simple will is drafted to do just that. Then the day comes when siblings become tenants in common and the fight is on.
Luckily, there are planning tools to help avoid this problem if you are willing to put in the work and fore-thought. Developing a plan that specifies your vision for your ranch’s future as well as asset distribution can help smooth owner-ship transitions for your heirs while maintaining family and business harmony.
Every farm or ranch operation is different, so consulting with a qualified attorney, accountant and financial planner to help you manage all parts of the process is important. Whatever your operation entails, plan now to provide stability and harmony for the next generation.
Editor’s Note: Brent Haden and his wife Connie, are founders of Haden & Haden law firm in Columbia, Mo. He was raised on a Missouri farm and attended the University of Missouri and Harvard Law School. They live in rural Boone County, Mo., with three sons. You can contact him at: firstname.lastname@example.org