The MSBA Estates and Trust Section Study Group recently sponsored a presentation on Combating the Racial Wealth Gap in Maryland Through Changes to Probate and Intestacy Laws. Attendees heard from section member Jennifer B. Goode (Birchstone Moore LLC) about the nature, extent, and causes of racial disparities in wealth; 2020 MacArthur Foundation “Genius” Award recipient Thomas W. Mitchell, who discussed the Uniform Partition of Heirs Property Act (UPHPA) as a way to help address these disparities; and Richard Shore (Gilbert LLP), who is working to promote the UPHPA in Maryland.
Ms. Goode opened the program with an all too familiar litany of statistics that illustrate the racial wealth gap. Using a 2019 Federal Reserve survey, she reported that median family wealth for Black ($24,100) and Hispanic ($36,100) families was only 13% and 19%, respectively, of that of white families ($188,200). Minorities likewise have less in savings and, therefore, are less able to avert catastrophe when faced with a financial emergency. While 60% of whites had access to equity in a home, business, or investments, the same was true for only 33% of Blacks and 24% of Hispanics. There are also significant disparities in home ownership, and in access to credit necessary to acquire or improve real property or invest in a business.
The root causes of these disparities are also familiar. The chief culprit was centuries of slavery, when Blacks were deprived of the right to own property, and were themselves property used to generate wealth for whites. Racism and its impact on the distribution of wealth did not end with emancipation, as slavery gave way to Black Codes and Jim Crow, which suppressed wages and economic opportunity for generations of Black Americans. In the 20th and 21st centuries, discriminatory application of the GI Bill and federal mortgage programs, legally sanctioned segregation that continued through 1964, and the impact of systemic racism have sustained this trend.
The wealth gap, like wealth itself, is self-perpetuating. The wherewithal to make lifetime gifts and post-mortem bequests allow those of means to provide subsequent generations with enhanced educational opportunities and down payments on houses, major drivers of generational wealth that are out the reach for many people of color. The tax-advantaged transfer of wealth itself, which often accumulates and continues to grow, also operates to put minorities further behind.
Ms. Goode noted that while this is a national problem, there are steps that can be taken locally to begin to close the gap. There are, for example, several Maryland probate and intestacy provisions that disproportionately impact low wealth individuals, deplete their assets, and diminish opportunities to accumulate and share wealth. Among the offending provisions are Md. Code Ann. Est. & Trusts (E&T) §§ 5-604 and 6-102, which require a personal representative to post a bond in estates with a gross value of $10,000 or more. The ability to obtain a bond is closely related to creditworthiness which, as noted, can be a significant hurdle for people of color. While this requirement can be waived, obtaining the waiver can take time and money. Designated family members might be excluded from serving, the process can drag out, and the resulting family strife can be destabilizing.
The lack of access to estate assets for six months during the creditor claims period under E&T §§ 5-603(b) and 8-103(a) can have a similar impact. Although there are exceptions, they are useful only if the estate contains liquid assets. Where, as is often the case, the primary asset is real property that cannot be sold quickly, financial instability will often follow the demise of the family’s primary breadwinner. Amending these probate provisions with legislation like that enacted in Virginia, which permits beneficiaries to transfer some assets outside of probate, can cut costs, speed the distribution process, promote liquidity, and leave more of the family wealth intact.
Ms. Goode then looked at Maryland’s intestacy laws, which also have a profound effect on the racial wealth gap. She noted that the state’s intestacy scheme is based on 18th century common law and traditional (white) family structures that differ from those of the 21st century. The differences are acute for minority populations, where fictive kinship is often more important than consanguineal relations, resulting in a greater reliance on extended family and friends for support traditionally provided by immediate family, the informal adoption of children by family and neighbors, and other cultural traditions that produce testamentary desires different from those of a white family in 1798, when the general rules of intestacy were codified in Maryland. As a result, the wealth of Black Americans, who are more than twice as likely as whites to die without a will, is disbursed rather than consolidated in the hands of those it was intended to benefit.
Ms. Goode discussed several changes in the intestacy provisions that might help minority populations keep their wealth intact. These changes could start with an expanded definition of “child” to include informally adopted children (beyond those currently included by Maryland’s limited equitable adoption doctrine), which would allow the child to inherit from both the adoptive parent and that parent’s relatives. Taking a page from British Commonwealth countries, Ms. Goode suggested that allowing judges discretion to award property to individuals who have established “support relationships” with fictive kin could also serve to consolidate wealth in Black “families” rather than to disperse it widely among distant relatives.
Ms. Goode then turned the program over to Texas A&M University School of Law Professor Thomas W. Mitchell, a leading authority on the dissipation of real property ownership by Black Americans. Prof. Mitchell’s remarks focused on the Uniform Partition of Heirs Property Act as a means to preserve wealth for those who have seen hard earned gains of their forebears lost to the vagaries of the nation’s intestacy laws.
The professor explained that “heirs property” is real property that passes to family members upon the death of an owner who failed to execute a will or otherwise plan for its disposition. Such property is typically transferred to heirs as tenants in common, an unstable form of ownership that is, for example, vulnerable to partition and forced sale at the request of a single co-tenant, regardless of the size of their interest. Any change of ownership is subject to unanimous consent and can be blocked by a single owner. As the property may have passed through successive generations, there may be many co-tenants from disparate branches of a family tree, but no deed or other definitive legal instrument to confirm ownership. Because commercial lenders and government programs require clear title to the property, this makes it nearly impossible for the family to access equity in the property.
The UPHPA addresses these issues by providing several new remedies for related co-tenants of property inherited through intestacy. First, it contains buyout provisions akin to a right of first refusal for co-tenants who want to retain the property in the face of a demand for a partition sale. Second, the UPHPA strengthens the common law preference for partitions in-kind by allowing the court to consider the totality of the circumstances before ordering a sale in lieu of physical partition, rather than just the economics of the transaction as is generally the case under common law. Under the UPHPA, the court can consider such things as long standing family ownership, its sentimental or cultural significance, and existing uses of the property. Finally, if a partition sale becomes inevitable, the UPHPA provides a market sale alternative to what might otherwise be a “fire sale” at auction. Under the Act, the court can appoint a broker to market the property in a commercially reasonable manner, without artificial timelines or other restrictions that adversely impact the price and, therefore, the proceeds available after a judicial sale.
The UPHPA has already been adopted with overwhelming bipartisan support in 18 states. Prof. Mitchell noted that while it can have a dramatic impact on the preservation (and, therefore, the growth) of wealth for Black Americans, it has also been of great benefit to rural whites, Latinos in the southwest, and urban families of all backgrounds.
The presentation concluded with a brief report from Richard Shore, who is seeking to bring the UPHPA to Maryland and the District of Columbia as part of his efforts on behalf of D.C. Mayor Muriel Bowser to propose remedies for structural disparities in economic participation among disadvantaged communities. He sees great potential in the UPHPA, and encouraged anyone interested in joining a coalition to promote its enactment to contact him directly.
The full 75-minute presentation can be viewed here.