Transcript

Surekha Carpenter: I am Surekha Carpenter, a research analyst at the Federal Reserve Bank of Richmond. Thank you for listening to Speaking of the Economy. You can find past episodes on the Richmond Fed's website or Apple Podcasts.

Property ownership has been a way for Americans to build wealth. Therefore, any loss in property rights when they're transferred between generations can contribute to the creation and widening of wealth gaps. Scholars who've studied heirs' property have argued that it's contributed to the racial wealth gap we experience today. In the Fifth District and in much of the South, this problem has resulted in substantial loss of both wealth and land that has hampered economic opportunity for many families. That's why we covered this topic recently in a Regional Matters post in October 2021.

To explore the impacts of heirs' property, we've brought together two experts on the topic. Today I'm talking to Parker Agelasto, executive director of Capital Region Land Conservancy, whose mission is to conserve and preserve the natural and historic land and water resources of Virginia's capital area for current and future generations. I'm also talking to Ebonie Alexander, the executive director of the Black Family Land Trust. She also serves on several boards, including the American Farmland Trust and Vault. The Black Family Land Trust's mission is to protect the land assets of historically underserved populations.

Thank you both for joining.

Parker Agelasto: Thank you. Happy to be here.

Ebonie Alexander: Thank you.

Carpenter: Let's start by defining what we mean by heirs' property when we talk about it. Can you both give maybe a little bit of an explanation?

Alexander: Sure. I'll give you the layman's explanation.

Heirs' property is when you own a piece of land that has been in your family for multiple generations. It may have been left to you from your grandparents or your parents. The legal term for it is "ownership in common," meaning that if you follow the bloodline that you have rights to that property. It can be very, very complicated and it has a lot of misunderstandings associated with it, about who owns it and what that ownership looks like.

Agelasto: I'll add it also is one in which there is a chain of custody that is not clearly illustrated through the legal instruments that we typically see in a court, whether that be a will or deed. Therefore, the title on heirs' property is the issue, which is affecting many landowners from being able to have a legal claim that others respect and that could generate the opportunities for leases, for easements, to sell the property, etc., as an owner of property.

Alexander: And to add to that as well, heirs' property, as Parker said, is created by a lack of a legal instrument, a will or the state plant, some legal document, a deed. Heirs' property [is not about] a race, gender, ethnicity. It is simply an issue of when someone dies without a will, they create heirs' property. That can be whether you have a 100-acre farm in Augusta County, Virginia or you have a $100,000 condo on Broad Street in Richmond. As a result of that, that property is then owned by all of your heirs, and the proportion of that depends on where they fall in the family tree and in the bloodline.

Carpenter: I'm glad you added that because it's very clear that this is a relevant legal issue for potentially many Americans.

Can you guys tell us a little bit about why you reached out to the Richmond Fed regarding heirs' property?

Agelasto: The Black Family Land Trust and Virginia's United Land Trust and Capital Region Land Conservancy a few years ago worked to have legislation adopted in Virginia, whereby we created the Uniform Partition of Heirs Property Act. This was a uniform law that had been passed by other states had been recommended by the Uniform Law Commission, and so we were trying to get that adopted in Virginia.

There had been a number of studies that we were looking at in the South, primarily studies that the U.S. Forest Service had conducted as well as the Federal Reserve Bank of Atlanta. They made the case pretty convincingly in South Carolina, Georgia and elsewhere about the extent of heirs' property in those localities and the need for solutions, such as the Uniform Partition of Heirs Property Act, and also funding. In South Carolina and Georgia, for example, they have centers for heirs' property where they can provide legal services, etc. We wanted to evaluate what the extent of heirs' property in Virginia encompassed. By looking at it geographically, we would have a stronger case to talk to the elected officials.

We felt that the Federal Reserve Bank of Richmond had the best ability to compile this research through data sharing agreements and put together a map that we could then use as a baseline to assess the extent of heirs' property throughout Virginia. We were very grateful that when we contacted the Fed, you all were so on top of it with experts already looking at heirs' property. This is a great alignment for a research area and the value of the benefit to the entire Fifth District would be of importance, so we were happy to begin that work with you all.

Alexander: We're so appreciative of the Federal Reserve for helping us to collect data and giving us an idea of where we should concentrate our services to help resolve heirs' property issues. We recognize that we will never solve heirs' property. What we can do with some targeted outreach is to begin to address some of the multigenerational heirs' property issues.

Carpenter: I appreciate you both kind of explaining a little bit of that background and some information about the legislation that's going through, because I think that's a critical piece of the Regional Matters post that we produced. [It's] also a lot of the reason driving some of this research and why the Richmond Fed cares.

As you guys mentioned earlier, heirs' property can really happen to anyone. It doesn't see race or gender or sex necessarily. But we do see a higher occurrence of heirs' property within communities that historically did not have a great relationship with the traditional legal system, either a distrusting relationship or one where the legal system sought to exclude them, kind of like African Americans or native communities.

Can you talk to us about if and how this issue has played a part in driving a wealth gap between different communities in this nation, and what that might mean for economic participation and success?

Agelasto: One of the main things that we've seen is a complete decimation of the Black family farm. Back in 1920, Black farmers comprised 14 percent of all farms nationwide. Today, it is down to about 1 percent. And of that [which] is Black-owned farmland, it's less than a half of a percent.

This is a trend that one can say relates to an urban migration. But it can also relate to the fact that in the South, there were a lot of Jim Crow era laws that not only treated African Americans with disregard and seized property, but it allowed there to be legal mechanisms in which property could "be sold" but it was almost like a seizure. That is what in some cases the partition of land was, where a family member who might be long gone deeds off interest to another party. That party as an unrelated party could come in, petition the court and essentially force the remaining family off the land and create a legal process that could be expensive, that could be misunderstood or not easily understood by the family who was being forced into the situation. Frankly the courts, in many cases, had a history of disrespecting the rights of African Americans.

That process led to a large wealth gap and the lack of African American farmers and others owning assets and being forced off the land. Over time with multiple generations where you no longer have an asset that appreciates over time, you are living paycheck to paycheck and therefore you are not able to build wealth. You then find yourself in a financial decline.

Alexander: African Americans since the 1920s have lost — depending on whose data you use — anywhere from 94 to 97 percent of their land assets. Land is the only asset that you own that is placed based, that is an appreciating asset. It is a finite commodity. Because of that when you lose your land, you become a powerless people.

As Parker spoke about, there have been some of the things that states have done. The USDA played a huge role in this, as evidenced by the fact that they paid out two discrimination suits.

When you are tricked out of your land or your land is essentially stolen, it creates that wealth gap in the community. But there are a couple of other things that have created that as well. One is lack of access to affordable, trusted legal services. The second one is lack of access to flexible capital. When you have a family that's ready to resolve an heirs' property situation, they may not have the resources to pay the attorneys' fees, to pay the court fees or even to buy out fellow family members. So there's no flexible capital.

The third one is the lack of education about what heirs' property is. You would be surprised at the number of people that we speak with who have been told by attorneys and by others that if you keep your land as heirs' property, then that's the best way for you to retain that land in your family, when in fact, that's one of the fastest ways to lose the land. Other things that people have been told is that if you pay the taxes on the land then it's your land, or don't pay the taxes for three years and let it go up for auction and then you can buy the property.

Carpenter: Thank you both very much for all of those examples.

Let's pivot. In our Regional Matters post, we explained that we had some known limitations of our research, namely that there were properties that your organizations knew to be heirs' property that were not labeled as such in our data. So we recognize that there's great value in talking to organizations like yourselves that work on the ground with families that hold heirs' property.

Where do you see heirs' property in Fifth District states? That includes the District of Columbia, Maryland, Virginia, West Virginia, North Carolina and South Carolina.

Alexander: I think one of the things that we need is the passage of the Uniform Partition of Heirs Property Act in certain states. Virginia and South Carolina have passed the act. The District of Columbia, North Carolina and Maryland have bills introduced that have not passed their legislative process. West Virginia does not have a bill introduced to my knowledge and they have not been working on it.

It's so important that families have some extra protection under the law. We recognize that the Act is not a panacea, it's not going to fix it. But that little extra protection, that little leg up can help families regroup and figure out what they want to do with their land assets.

I think the other thing that we can do is provide education, real education about the value of land, about what heirs' property is, how do you resolve heirs' property, and taking it a step further and looking at estate planning so that we don't have the cyclical nature of heirs' property. We resolve it in this generation and then the next generation.

For me, I think it's so important that we help educate people about not continuing to partition their land with every generation. If we continue to partition the land, we're going to end up with postage stamp pieces of property that will have very little value. We've got to help families understand that land is an asset and it should be a performing asset for current and future generations, and help them go back to figuring out how do we make this land work for current and future generations.

Carpenter: Parker, do you have anything to add?

Agelasto: Yes, it's a lot about financial literacy and trying to bring education to folks about the value of an asset. If you continue to carve away at the size of that asset, it is not as valuable. You begin to eliminate opportunities to market the property for, let's say, forestry, which would have a recurring revenue stream for the family, or to do an agricultural lease to a third party which would have recurring revenue.

There's also a lot that needs to be done from providing legal services. Working through the legal process is not inexpensive. It's not an abbreviated process.

I think folks may have a misunderstanding of the work that goes into resolving heirs' property. One of the things that the Black Family Land Trust does incredibly well is saying, if you've got a working farm or if you've got working land that could be placed into a conservation easement but you're only hurdle is this issue of heirs' property and the title, there's a process to have the family reach consensus on the distribution [and] put it into an LLC where those proportionate family interests could be the same proportionate interest but just in an LLC business model, where the proceeds and the expenses are distributed equally. That way the ownership issue is resolved and it just becomes more about the business of operating and maintaining an asset that would continue to appreciate and generate short-term income but also long-term wealth.

If [heirs' property] is not resolved today, you are just dealing with more owners in the future as successive generations pass away and the next generation takes their fractional interest. It just becomes more and more difficult to resolve, or even to track down those family members to communicate with.

Alexander: When you resolve heirs' property, not only do we help those families retain those assets, we help stabilize communities. And from an environmental perspective — after all, the BFLT is a land trust — it helps protect the environment where we can put conservation easements in place. We can get a family to say we've got a 50-acre farm [but] instead of dividing it up into five-acre pieces, we're going to keep it together. When we see five or 10 acres get sold for bricks and mortar or for something outside of open space or forestry or [agricultural] use, then it's like a domino effect.

Carpenter: I appreciate that. I think that that really lays out very well the things that could be done to address this issue and also the benefits of addressing the issue.

My last question then is, do you see any key challenges moving forward?

Alexander: Always. [Laughs.] Always, always.

The biggest challenge we have right now, in my opinion, is the lack of resources to address the problem. Parker spoke about the cost of legal services. As he said, it is not inexpensive, it is very expensive. We estimate that if it's a first or second generation, it could cost between 13 and $15,000 just to resolve the heirs' property. That does not include if you have to buy someone out.

Virginia's statute doesn't allow organizations like the Black Family Land Trust to hire attorneys that can go into court and represent our clients. We have to work through third-party attorneys. We've been working with the state bar to help address this. We need to have available to us education and financial resources that will allow families to be able to resolve the heirs' property.

Agelasto: If we want to do this, we're going to have to do it in a matter of one generation or two generations. The problem is just so large, it can't be solved without tremendous resources. Our country has become so much more of a mobile society that people are leaving those lands, and you really can't resolve them once you lose track of that family member.

Carpenter: I very much appreciate hearing from you guys shining a light on this issue and making it very clear the problem of heirs' property, the solutions, and the barriers that we may have and the work to come.

Thank you both very much for joining and helping us walk through heirs' property.

Agelasto: Thank you.

Alexander: Thank you, Surekha.

Agelasto: We really appreciate the opportunity.