If you inherit property with your brothers and sisters, you just got thrown in to business together with no business plan, no body in charge and perhaps, wildly different goals for the business. This form of ownership is called:
- Tenancy in Common – , in which the two or more parties own an undivided fractional interest in the property, but when one of the “tenants in common” dies, that person’s fractional interest passes via probate (with or without a will) to the dead tenant’s heirs. This allows for a “step up” in the tax basis of the property for capital gains purposes, and can be used to bring in the next generation as a co-owner with the surviving spouse.
That’s why it gets complicated. Corn or beans. Hay ? CRP? Sunflowers? Multiple owners have multiple biases, goals and desires. If a co owner is deep in debt, they are motivated to maximize revenue while a well off co owner might consider things like land conservation, long term development potential or other agenda items that will bring conflict to the front burner.
Iowa law says people in these situations have the right to get paid from a cotenant who is in control of the property, their respective shares of the “rental value” of the property. Easy to figure when one co tenant got a rent check, not so easy when that co tenant is farming the ground.
The Iowa Supreme Court has pointed out that lease of executed by one tenant in common Is not binding on other tenants in common unless they okay it, like cashing a rent check.
If you don’ t want to be in business with the sibling that sold you your parents car when you were in high school, you can ask the courts for a partition action. This is a essentially a court ordered sale of the property. This actions are often threatened but usually result in someone blinking and buying the other co tenant out of their interest in the property.
Bottom line, if you inherit property with a sibling or other party, you should look towards formalizing the relationship with a partnership agreement, forming an LLC or other positive steps. This can make your life a lot easier, a lot less familiar with lawyers offices and judges chambers and perhaps, allow your children to work together with their cousins owning a family farm for another generation.
The other common form of ownership is Joint Tenancy with Rights of Survivorship - A form of ownership in which each person has an undivided fractional interest in the entire property (The property is not physically divided in half). This is common between spouses. For example, with two joint tenants, when the first “joint tenant” dies, the survivor takes title to the entire property through operation of the law of property ownership, with no need for probate (i.e., ownership rights need not pass through a probate estate action). You will need to fill out an affidavit however.