Using Integrated Capital to Build Community Wealth & Power – March 30th

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From Legacy to Loss

The property inheritance problem you probably haven’t heard of

Heirs’ property is little known even though it is a substantial cause of wealth loss in marginalized communities throughout the United States. Heirs’ property results from land passing down informally across generations to multiple descendants. As heirs multiply over time, each individual has a diminishing, undivided interest in the property that is undocumented. This fractional ownership impedes wealth generation from the property and can result in involuntary land loss. Heirs’ property is prevalent in the southeast and in tribal lands, with additional concentrations in Appalachia and parts of the southwest. Recent policy changes are starting to address this loss of property-derived wealth. But more progress is needed to remove the barriers that block wealth from inherited land in communities that can least afford wealth loss.

Hand holdling topographical mapMany families have passed down property without a will for multiple generations. Any combination of descendants may live on the property, pay the property taxes, or make land use decisions. With each successive generation, the title to the land does not and sometimes cannot represent all who have an ownership interest. Consider a 10-acre property with 97 heirs. This “cloudy” title is at the root of many problems:

1. The land is increasingly fractionated over time, resulting in large numbers of co-owners with slivers of ownership interests. Transaction costs associated with any decision become high because of the sheer number of people who must be tracked down.

2. The land asset can’t be productive without agreement from all co-owners. This results in underutilization of the asset and loss of income.

3. The asset can’t be protected. Insurance and disaster relief require clear title.

4. The asset can’t be leveraged. Bank loans and farm loans require clear title.

5. The land may be sold involuntarily. Delinquent property taxes or speculators can put the property at risk. If a third party buys the interest of just one heir, the third party becomes a co-owner and can initiate a “partition sale”. In a partition sale, the entire property is sold at auction — often below market value. The heir may be unaware that their decision to sell can end in involuntary property loss for everyone else. But third-party speculators are well aware of this way to obtain property at low cost.

Passing property down without a will may be perceived as the best way to retain the land legacy in the family. This is particularly true in communities which have had negative legal system experiences.

Heirs’ property in the southeast and tribal lands is better documented than in other areas. In southeastern states, heirs’ property is often the legacy left by formerly enslaved ancestors. These ancestors overcame tremendous odds to acquire property following the Civil War. Black farmers control fewer than 3 million acres today as compared to more than 16 million in 1910. The United States Department of Agriculture (USDA) attributes a large part of that decline to the vulnerabilities of owning heirs’ property. Recent estimates of total southeast Black-owned heirs’ property range from 1.6 million acres worth $6.6 billion to 3.3 million acres worth more than $28 billion.

Heirs’ property results from land passing down informally across generations to multiple descendants.

Tribal lands include fractionated allotments, which are very similar to heirs’ property. Concentrations of this land are in the Great Plains and Rocky Mountain regions. 1880s legislation forced fractionated ownership with similar detrimental impacts. The Bureau of Indian Affairs notes fractionated ownership in over 5.6 million acres of tribal land.

The estimates indicate how much land remains vulnerable and how much wealth loss has already occurred. Of course, acreage cannot account for lost sense of place, culture, and family legacy.

The 2010 Uniform Partition of Heirs Property Act (UPHPA) is now in effect in 17 states and has been introduced in 6 others. The Act’s intent is to reduce or mitigate involuntary land loss. The UPHPA requires notification to heirs of land actions and offers right of first refusal. When an heir buyout isn’t possible, the UPHPA requires that the sale price is closer to market value. Results of this policy change are just coming in. A 2021 study of the impact found that many lawyers, judges, and property owners were still unaware of the law. But the intent is promising.

More progress is needed to remove the barriers that block wealth from inherited land in communities that can least afford wealth loss.

The USDA has also made progress. The 2018 Farm Bill enabled owners of heirs’ property to obtain a farm number for the first time. The farm number is required for USDA programs and aid. USDA programs include assistance to realize wealth from the land such as through timber farming. In 2021, the USDA introduced the Heirs’ Property Relending Program so that heirs’ property owners can access loans to resolve title issues. The first three lenders were announced in 2022. They include Akiptan, Inc and the Cherokee Nation Economic Development Trust Authority, which both focus on tribal lands. The third lender, the Capital Collaborative, focuses on the southeast.

Retaining control of heirs’ property begins with documenting the ownership interests. Then the heirs can determine how to handle the property given state laws and their specific situation. This undertaking is complex and can be prohibitively expensive. HeirShares is a social enterprise which is developing software to reduce the legal costs by helping heirs start the process on their own. According to HeirShares co-founder and CEO, Mavis Gragg. “Wills are not enough. This requires succession planning. LLCs or trusts may well be part of the solution depending upon the circumstances.” With secured land ownership, the heirs can focus on realizing value from their land.

Land plots seen from above

Heirs property is a thorny issue which involves millions of acres of potential wealth concentrated in marginalized communities. Involuntary land loss can start without heirs knowing that they are property co-owners. The UPHPA and USDA progress is a solid start, but those efforts require greater awareness and enforcement. Ultimately, the form of ownership of communal property must be changed to retain the family legacy — but this takes time and resources. Increased attention to heirs’ property, protecting the ability to keep that which is owned, can halt continued wealth loss while creating conditions for wealth generation in communities that need it most.

Lisa Jones is an impact investor and donor focusing on strategies that reduce the wealth divide. Her impact investing and strategic philanthropy affiliations include SV2, SVP Chicago, OpenImpact, the Miller Center for Social Entrepreneurship and other organizations. She is a member of the Impact Entrepreneur magazine advisory board.
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