Somewhere, in a galaxy far, far away, siblings never disagree over how to care for an aging parent. Step-children never fight over who is entitled to which assets. Grandchildren never blow through inheritances. And families harmoniously manage and share family heirloom properties for years, each doing their part to make sure that it is intact for the next generation.
Now, back to Earth…
Sure, a family vacation home that lives on for generations to come home sounds like a lovely idea! It’s not a new concept; family matriarchs have long been passing down real estate to heirs – even the Romans 2,000 years ago. It can be challenging enough when assets are divided as pieces of the pie (Child A gets Property A, Child B gets Property B, etc.). However, things become even hairier when the property is intended to be shared. If that is your intention, it is critical to consider the following:
1. Do your descendants even want the property? People have vastly different values and interests. It’s unwise to assume that managing a property (with or without another family member) is one of them. This is why it is vital to include your heirs in conversations about your plans.
2. Does a Limited Liability Company make more sense? Transferring ownership of a property to an LLC, with a user agreement that sets out terms and conditions, could help to prevent family disagreements over things like upkeep, use, and if or when to sell. Another option is creating a trust for the property with its own bylaws. That way, Grandma can make sure that everyone plays by her rules for the family beach house long after she’s gone.
3. Who will pay for the maintenance costs of the property? Roofs and siding need replacing. Property taxes and utilities must be paid. The associated costs of homeownership can put an unwelcome burden on loved ones and lead to disagreements between heirs. Creating a dedicated fund for such expenses, supported by you and/or annual contributions from family members, alleviate financial concerns.
4. What is the exit strategy? Nostalgia is a heck of a drug, but the reality is that personal circumstances change. Any long-term plan should factor in the possibility that descendants may at some point need to or want to sell. It is critical to outline provisions for doing so.
5. What are your intentions? Examining why you want to pass down a property to heirs is key. Are you financially motivated? Are you trying to keep loved ones connected? Gifting real estate is not always a wise financial decision, nor is it the only way to foster familial ties. For example, a trust that funds family vacations may be another way to achieve your goal.
The Bottom Line?
Leaving real estate to heirs is not a decision that should be taken lightly. Doing so can have unintended financial consequences and create potentially relationship-ending stress on families. It’s essential to work through the pros and cons of such a decision with an experienced estate planning attorney.