One day the dream comes true, siblings inherit the most coveted possession, the family vacation home. Everyone happily uses the home for family vacations and fun times for several years. The property appreciates considerably and now one sibling wants to either sell the property, or have the other, buy out their half.
Co-owners of real estate have a right to their interest and can force the sale of the family vacation home, in court, if necessary. This situation is not at all unusual and, unfortunately, can create a lot of hurt feelings. One owner has no interest in the property, while another has strong ties to it, but can’t afford to buy out the other owner or owners.
The question for owners of vacation homes in planning their estates is the vision they have for the property. Do they see the property as binding their family together for generations to come as they continue to vacation together? Or are they more concerned about the issue of equity, in that some children are unlikely to ever use the property, while others may use it often?
Two estate-planning solutions are commonly used with regard to vacation homes. The first is to direct that the property be sold within a certain amount of time — often a year — after the surviving parent’s death. The children are given a right to purchase the property at a bit less than fair market value, called a “right of first refusal.” If none of the children exercises this right by the deadline, the property is put on the market. This solution has the advantage of finality and equity. Each child gets his or her share and is not tied to the other children for years to come.
The second approach is to put the house in trust for the family, or into a limited liability company. Usually one or two family members are named trustees, or managers, to manage the property for the benefit of all children and grandchildren. They can assess appropriate charges for use to cover the cost of upkeep and repairs. This preserves the house for future generations and may also avoid probate.
There is no right or wrong answer, just a question of the parents’ values and goals. A plan is almost always better than no plan. There is no guarantee that all heirs will be happy with whatever decision is made. In most cases they will accept what their parents or grandparents decided to do with their property. In terms of family harmony, it’s often better that any anger be directed towards the parents who are no longer there, than towards siblings who are still around.
Be Educated! Be Proactive!