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Keeping Wealth in the Family
The role of 'heir's property' in eroding black families' wealth
The black-white wealth gap is staggering. In, Just Action, we describe how this gap is at the root of our nation’s most serious problems of racial inequality. While wealthy white families often use their economic resources to segregate and create unique advantages for themselves, lower-wealth African American families are limited to living in lower-resourced, more disadvantaged areas. Partly because the differences in household wealth between typical African American and white families determine the neighborhoods in which they live, this wealth disparity is a key factor in black youths’ poorer academic outcomes, black adults’ greater health challenges, and young African Americans’ disproportionate exposure to police abuse and higher incarceration rates.
As we note in Just Action, African American household income is about 60% of white household income. That discrepancy is concerning in itself, but the wealth gap is much, much worse: African American household wealth is only 5% of white household wealth.
Government housing policy exacerbated the wealth gap
While many factors have contributed to the troubling disparity between the income and wealth gaps, one factor stands out: government housing policy in the early- to mid-twentieth century.
Policies that subsidized homeownership for white working- and middle-class households during that period allowed those families to buy homes. They accumulated wealth over decades as their homes appreciated. They then passed on that wealth to their children and grandchildren.
African American families were explicitly and unconstitutionally excluded from these programs. That made it harder—often impossible—for them to own homes and thus build wealth they could bequeath to subsequent generations.
For many African American families, the story stopped there. These families would have been able to afford a home if they had been permitted to purchase government-subsidized suburban homes the way white families had. But they were explicitly prohibited from purchasing those homes.
But even for the minority of black families who managed to purchase homes, a wealth imbalance has persisted. These families were forced to purchase into less-well-resourced neighborhoods, and the values of homes in those neighborhoods didn’t increase the way home values in white suburban areas did. Therefore, though they were able to accumulate some wealth, they were not able to accumulate as much wealth as white families did.
We describe all this in Just Action. And we talk about ways to begin to redress homeownership disparities going forward. We describe programs that can help black families into homeownership today, and we show how racial justice advocates and their community organizations can improve access to these initiatives, expand them, and increase opportunities for homeownership in communities where poverty isn’t concentrated.
But there is yet another part of the story we did not have space to address in the book. Families who had homes and land have too often lost them, because these properties were not passed down according to the original owners’ wishes. For these families, lack of intergenerational wealth lies not in the fact that they never had wealth. Rather, the wealth they had built was lost rather than fairly inherited by subsequent generations.
Probate and the ‘heirs property’ designation puts families at risk of losing their homes and wealth
When a property owner dies with a will or estate plan, the asset is distributed according to the owner’s wishes, with the named heirs becoming the legal owners of the property. This happens more often for white property owners than for African American property owners. While most American adults do not have a will, over half of white Americans do, compared with 24% of African Americans.
There are many reasons for this discrepancy. Families with fewer assets or lower-value homes—who are disproportionately African American—may think estate planning is not necessary and may be less aware of the benefits of having a will. Black households may also be less likely to trust the legal system. Finally, they may be deterred by the legal expenses associated with creating an estate plan.
When a person dies without a will or estate plan, their assets go into a process called probate. In this process, the court decides how much the assets are worth, pays off creditors, and then identifies heirs. Without a will naming heirs, the court uses default rules that give children and grandchildren shares of the property (with complicated rules about who the heirs are if there are no surviving children or grandchildren). The asset is then designated an “heirs property.” This designation can be problematic.
There is no easy way to get a home out of being an heirs property once it is so designated. Most states require agreement by all heirs to change the ownership structure. This can be difficult or impossible, as there may be dozens of heirs spread across the country—or even the world—who may not know they are part-owners of a property. Locating them and informing them of their rights can be a challenge. At the very least, the process will require significant resources for fees, appraisals, and legal assistance.
Those living in a home their parents or grandparents owned may think that they are the presumptive owners when those older generations pass away. They may have lived at the property for years—even decades—and they may know or believe that their parent or grandparent wanted them to continue living there.
But without a will, the property is not legally transferred at the owner’s death to the persons occupying the home, so the occupants are not on the home’s title. Without a clear title, the occupants can’t qualify for any kind of loan that requires the property to be used as collateral, such as a home refinance mortgage. They are also unable to access many government-funded programs aimed at homeowners. For example, they are disqualified from disaster relief as well as the “homestead exemption,” which reduces property taxes for owner-occupied homes. Without this exemption, in areas where property values are increasing, the occupants of the home will be faced with rising property tax bills without being eligible for reductions. They may miss a payment. Local government then will likely place a lien on the home for the unpaid taxes. This can lead to foreclosure and the loss of a home that had been in the occupants’ family for generations.
Even if the occupants are able to keep up with taxes and forestall foreclosure, if the home is an heirs property, the occupants could still lose it under partition laws, which are in effect in 27 states. Under a partition law, when any heir requests to cash out their portion, no matter how small a fraction they own, it forces sale of the entire property. A distant cousin who owns a 5% share can force a sale without the agreement of the other heirs, including family members who live on the property and who may have lived there continuously for decades.
Investors and developers sometimes take advantage of this, finding those distant relatives, buying their shares, and then forcing the sale. Per the partition law, the sale doesn’t happen on the open market, but in a government auction where the winning bidder must pay in cash. Family members who want to retain ownership can rarely afford to buy the home at auction. Instead, investors or developers—sometimes the very same ones that demanded the sale to begin with—buy the whole property for a fraction of what it’s worth. The sale proceeds are then split among all the heirs according to their court-designated shares.
Since 2011, twenty-three states have reformed their laws to prevent partition sales by passing a Uniform Partition of Heirs Property Act, or “Uniform Act.” Under this law, when a part-owner requests the forced sale of an heirs property, the remaining heirs can buy out that part-owner’s fractional interest and retain ownership of the property. The Uniform Act also gives the court the option to divide the property among all heirs, when appropriate, and allow the sale of that part-owner’s piece. In instances when a forced sale is appropriate, such as for a single home that can’t be divided into parts, the act requires that the property be sold on the open market, which yields a higher sales price than an auction and allows buyers to secure financing for the purchase. (For more on the Uniform Act, see this interview with Professor Thomas Mitchell, who developed the model state statute, as well as his recent book.)
Seven of the 27 states that haven’t passed a Uniform Act are in the South. There, many who have lost their land in the partition process are descendants of people freed from slavery who acquired land to farm. Often it was land no one else wanted at the time. This land has since become more desirable, and developers have used partition laws to acquire these now-profitable properties.
In North Carolina, Carteret County has the highest rate of partition actions. The county’s population of 70,000 is 6% African American, but 42% of the partition cases in the last decade involved African American families. A ProPublica feature about heirs property loss in the South tells the story of Jessica Wiggins, whose family owned 18 acres in Bertie County, north of Carteret. The land contained woods, farmland, and her great-grandmother’s house and, until 2015, was an heirs property. That year a company named Aldonia Farms bought the interests of four of the property’s heirs, one of whom was Wiggins’s uncle, who suffered from dementia. Even though Aldonia Farms owned only 39% of the land, it forced the sale of the full 18 acres. The remaining heirs could do nothing to prevent it. The property was sold in a county auction and the family lost it all.
In Louisiana, which also still has partition laws on its books, Fred Wardlaw’s family owned a large parcel of land in the town of Castor. The parcel included creeks, farmland, and several of his extended family-members’ homes. As Wardlaw described to NPR’s Planet Money in 2021, the land had been in his family since his great-great-great grandfather, Jacob Loud, who was born enslaved in Virginia, acquired it through the Homestead Act in 1906. By Fred Wardlaw’s time, the land was collectively owned as an heirs property by members of five generations of his family.
In 1999, Wardlaw’s family learned that a partition action had been filed, forcing the sale of the whole property. Wardlaw investigated and learned that the action had been brought by the owner of a 4% share, which Wardlaw’s great-uncle had sold to two white men in 1980 for $100. The buyers had then sold it for $1,000 to another man, from whom it was later acquired by a timber company. Though the company owned only 4% of the land, Louisiana’s partition law did not allow the remaining heirs to buy out that share or sell that fraction of the land and keep the rest. As a result, Wardlaw’s family’s land was auctioned off. No one in the family had the cash to make a bid. The timber company that owned the 4% share bought the full 160 acres, with proceeds divided up between the heirs. All homes on the land were soon demolished.
(Louisiana has since changed its law so that a part-owner of an heirs property must own at least 20% of the property to force the sale, but it has not made more comprehensive reforms such as passing a Uniform Act.)
While estimates vary, NPR reports that half of black-owned land in the U.S. is held as heirs property. More land is likely at risk of becoming so at the death of the property’s legal owner. This is a pressing issue in the South, where black-owned land is more likely than in other parts of the country to have been acquired several generations ago by ancestors who did not leave wills and estate plans. But it also affects homeowners in other parts of the country. When an elderly homeowner in Philadelphia or Cleveland, for example, dies without a will, their home also becomes heirs property and can be forced into a partition sale by any part-owner of that home.
What can be done about this?
Organized residents can campaign for their states to pass a Uniform Act if they have not yet done so. Until that happens, they can advocate for local government assistance to heirs property owners, in order to stabilize communities and prevent loss of intergenerational wealth. Gainesville, Florida, has an Heirs’ Property Assistance Program that provides free legal assistance to owners of heirs property to obtain clear legal title to their homes. Recipients must meet income eligibility guidelines and their property must be in the city’s Community Reinvestment Area.
There are limits, however, to what can be done once the legal owner of a property has died without a will or estate plan, especially in states that have not reformed their partition laws. Therefore, it is also essential that we do what we can to prevent this from happening. We should provide support to make sure more property owners have an estate plan that specifies who should be the legal owner of the property upon their death so they can avoid these complications for their descendants.
Organizations that provide homeownership education and counseling should include estate planning in their curriculum. Financial institutions that require borrowers receiving homebuyer assistance to take these courses should also make having an estate plan a prerequisite for eligibility. Community organizations can pressure banks that offer targeted assistance to low-income and African American borrowers to provide free or low-cost estate planning resources for their grantees.
Community and legal aid organizations should also provide affordable estate planning services and do targeted outreach to educate and inform African American homeowners, especially seniors, about what is at stake. Grow Brooklyn, a nonprofit that provides homebuying and financial counseling to lower-income residents of New York City, provides free estate planning services. More should follow its lead. Community organizations and churches can help educate their members about the importance of estate planning and connect them with resources to do so.
If we are serious about closing the racial wealth gap, as we should be, we must address the ways African Americans have been denied wealth accumulation through homeownership and also the ways they may be at risk of wealth loss through heirs property rules. There is much we can do to make progress on both.
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A version of this post has appeared on the Working Economics Blog of the Economic Policy Institute.