How is estate land divided?
Many people are interested in knowing how intestate real estate will be divided among multiple heirs and, more particularly, how a house will be divided.
Introduction
To begin, the term “real estate” includes the value of the underlying land, as well as everything that is permanently attached to the land, such as a house. The term “property” is not limited to land, but instead refers to everything that can be owned.
Also, although certain states have laws that direct the distribution of real estate independently of all other property, these laws are generally restricted to a defined class of relations and are further limited to a specific dollar value (or, although uncommon, to a specific physical quantity).
If the qualified intestate heirs do not fall within one of these classes of relation or if the value of the intestate real estate is greater than the amount granted by law, there will be intestate real estate that must be distributed. Consideration of these laws will not be useful in answering the main concern of this topic.
Finally, the division of real estate is governed by the intestate laws of the state where it is physically located. The intestate personal property of a person who lives in California is distributed according to California’s intestate laws, while intestate real estate located in New York and owned by the same person will be divided according to New York’s laws of intestacy.
Basis of Division
All forms of intestate property are divided among the heirs upon the basis of the fair market value, which is represented by a cash value. The quantity of any particular form of property does not affect how it is distributed or divided. In most states, the fair market value of all the deceased’s intestate property is added to together to form the intestate estate. It is this value that is divided among the heirs.
A minority of states, just nine, have laws that may require intestate real estate to be divided separately from the remainder of the intestate estate. However, considering real estate separately from the remainder of the estate does not change the method of division. The fair market value of all intestate real estate is added together and then divided.
Because the intestate estate is divided upon the basis of it cash value, the process of division is the same whether the intestate property is ten bottles of wine, ten acres of real estate, ten cars, or all of these combined.
Suppose an unmarried parent dies with four children and forty acres of real estate. Many people incorrectly expect that the forty acres will be divided equally by giving each child ownership of ten physical acres of land.
How is estate land divided?
Rather than using this method, the forty acres will be assigned a cash value (typically based upon an appraisal or actual sale) and that cash value will be divided among the children. If the forty acres are worth a combined total of $20,000 then each child will receive an equal share of $5,000 from the intestate estate. One difficulty with partitioning real estate into separate physical portions (such as ten acres each) is the effects that geography and topography can have on the value of any individual portion of land.
For instance, suppose the forty acres consists of thirty acres on the Florida coast and ten acres in the middle of an uninhabitable desert. The thirty acres in Florida may be worth millions, while the ten desert acres may have a minimal value.
It is not likely that any of the four children would be willing to take the desert acres as his or her entire share. It is also unlikely that any child will want a portion of the desert land as part of his or her share, such as seven and one-half acres of the coast land and two and one-half acres of desert land. In what may be a more common example, consider the difficulty in physically dividing a house between multiple heirs.
Application of Division
The intestate real estate is commonly sold to a third party so that each heir receives his or her share in cash. However, an heir can usually request to receive his or her share of any real estate “in kind” so that title to the fraction of ownership in the real estate that is represented by the heir’s intestate share of the estate is transferred to that heir.
When there is just one heir this request should not cause any difficulty, because that heir is entitled to the entire intestate estate. Where there are multiple heirs, an heir whose share of the entire intestate estate is less than the real estate’s total value will be required to buy the remainder of the real estate so that the remaining heirs receive their cash value.
Using the forty acre example, suppose just one of the four children wants to own the real estate (and, for better illustration, the real estate is the only asset of the intestate estate). That heir is entitled to $5,000 or one-fourth of the real estate’s total value.
In order to take ownership of his share, he will have to purchase the remaining three-quarters of the value by paying the estate $15,000. This payment to the estate allows each of the remaining three heirs to receive their individual $5,000 share.
In the end, each of the heirs receives a $5,000 share. Each of the heirs who take a cash distribution from the estate obviously receive a $5,000 share. The heir who takes the $20,000 real estate also receives a $5,000 share from the intestate estate, because he had to pay $15,000 to receive title to the real estate.
Although the estate could elect to offer the remaining three-quarters of the real estate’s value for sale on the open market, most buyers will not be interested in purchasing property that comes with another owner. Aside from real estate that has investment value, most people will not purchase property that requires them to become joint owners with another person, particularly with a stranger.
Ownership By Multiple Heirs
Two or more of the heirs may also request to receive ownership of the real estate together as payment of their individual intestate shares. With this type of distribution, each heir’s ownership of the real estate is based upon his or her share of the entire intestate estate. If two of the heirs wanted to own the forty acres together, they would pay the estate a total of $10,000 so that the remaining two heirs will receive their $5,000 shares.
When two or more heirs elect to receive intestate real estate together, they will take title together as joint owners. As previously mentioned, the real estate is not divided into physical portions representing the value of each heir’s share. This means that the individual heirs are not assigned specific physical or geographic portions of the land, but own a fractional interest of the combined total value of all the land.