Family Property – When Blessings Become Curses

God told the Israelites in the 25th chapter of the biblical book of Leviticus that in every 50th year, a family would regain ownership of land that the family’s ancestors had sold during the past 50 years. The Mosaic Law ensured the blessings of property ownership in the ancient Israelites’ tribal culture, but shared land ownership can become a curse in today’s individualistic American culture without expert planning.

The ideal of family property breaks down when one co-owner wants to keep the land and another co-owner wants to sell it or someone else forces a land sale. Shared family ownership faces threats from family members’ relational, financial, taxation, legal, marital, health, and alcohol and substance abuse crises.

Family rivalries threaten family property when one family group wants to keep the land and another family group is only interest in the land’s monetary value. Indiana partition law allows the money-oriented family members to sue their relatives in court to force a court-ordered public auction of the land. Timing varies from case to case and among the various courts, but it is possible for land to sell at public auction within 4 or 5 months after the lawsuit begins.

Even harmonious families face family property threats when individual family members’ personal dramas become financial crises. Layoffs, divorces, uninsured health catastrophes, business failures, and drug or alcohol abuse can snowball into overwhelming debt, collection proceedings, and judgment liens that give creditors collection rights against the indebted family members’ shared ownership of family property.

Some forced land sales have nothing to do with such crises. It is inevitable that when land passes down through several generations, some family members will become so disinterested and unresponsive about family property that the family will lose contact with them. Such disconnected families often become unable to pay property taxes, maintain buildings, or make important property management decisions. This lack of coordination leads some families to lose property when government agencies sell the land to pay taxes, fines, or penalties.

So what can family patriarchs and matriarchs due to preserve and protect family property from these threats? The answer depends on family size, individual family members’ legal and financial stability, and the number of generations that may participate in property ownership.

A large family increases the chances and risks that one or more family members may contaminate family land ownership with the consequences of their individual crises. Likewise, a plan to pass the land down through many generations creates the same prospect of exposing family property ownership to individual problems of many potential property owners.

A family limited liability company (LLC) is one of the most effective tools for keeping family property ownership intact and insulating it from individual family member vulnerabilities. Family members own membership shares (usually called “interests”) in a properly designed LLC that creditors cannot use to force the LLC to sell land. An expert estate planning lawyer knows how which options to select when filing articles of organization with the Secretary of State’s office and how to prepare a detailed operating agreement that prevents creditors from gaining meaningful influence over the LLC.

If a family member already experiences health or financial crises when a property owner plans his or her estate, and expert estate planning lawyer can design a plan that will prevent that troubled family member’s legal and financial problems from disrupting the family property. Estate plan can include special protective provisions that hold that trouble family member’s inheritance in trust so that the family member can benefit from the inheritance without creditors seizing it.

Some families cannot keep family property because their family members are unable or unwilling to do what it takes to keep the property. No one can see the future and predict everything that may threaten family property ownership, but family property ownership stands a better chance in the hands of an expert estate planning lawyer.

Jeff R. Hawkins and Jennifer J. Hawkins are Trust & Estate Specialty Board Certified Indiana Trust & Estate Lawyers and Jeff is a Fellow of the American College of Trust and Estate Counsel. Both lawyers are admitted to practice law in Indiana, and Jeff Hawkins is admitted to practice law in Illinois. Jeff is also a registered civil mediator and was the 2014-15 President of the Indiana State Bar Association.

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