Wednesday, June 29, 2016

Common Problems with Inherited Homes

According to an article called "Inheriting Trouble" in the March, 2016 issue of the ARRP Bulletin, the Baby Boomer generation is expected to inherit $8.4 trillion.  Much of that will be in the form of real estate, often the parents' primary or vacation homes.

Whenever property is left to two or more adult children, it often brings grudges and resentments between the siblings out into the open. Long simmering jealousies can surface and cause conflict after you die.  According to John Pankauski, author of Pankauski's Probate Litigation Guide: Top 10 Probate Mistakes Revealed, "You never really know someone until you share an inheritance with them."

Other experts point out that the family dynamics change after Mom and Dad pass away.  While the family may have gotten along while the parents were around, old jealousies may re-emerge, according to David Fry, the co-author of Saving the Family Cottage.  This can cause estrangements and lawsuits that present difficulties for years.

The two books mentioned above will help you avoid some of the problems that can arise when passing on a family home.

Guidelines to Avoid Probate Problems When Inheriting a House

*  Ideally, there should be a family discussion about the property before the parents pass away.  Everyone needs to discuss their expectations.  There needs to be clear, direct communication between members of the family.

*  Mom and Dad need to accept that their children may not want to hold onto the family home.

*  Once the parents are deceased, the siblings who inherit the property together need to meet and decide if they want to sell or keep the property.

*  If some of the heirs want to keep the home and one or more of the others do not, decide how the value of the property will be determined.  Will there be an independent appraisal? Will the other siblings buy out the ones who decide to opt out by paying them a full, prorated share of the entire property's value, or will there be a discount put on the value?  How will the payoff be made ... in a one-time cash payment or spread out over several years?

*  For those siblings who decide to keep the property, the heirs should draw up a legal agreement with an attorney.  It can be a joint ownership agreement, a trust or a limited liability company.

*  In the case of family vacation homes, management decisions need to be put in writing, including how the property can be used and how expenses will be paid.  For example, will it be rented out part of the year, or be available only to members of the family?  How many weeks of the year will each heir and their family be allowed to use the home?  Will there be special times of year when the entire family gets together at the property ... such as the Christmas holidays?  Who will take care of regular upkeep and lawn maintenance?  Will there be a fund set up that everyone pays into to handle regular maintenance?  Will there be periodic special "assessments" to handle expensive repairs such as painting or replacing a roof or air conditioning system?  Can everyone afford to pay their fair share?

*  The family needs to agree on basic rules about how the vacation house will be used, including how clean the home should be left when each family leaves, should sheets be changed and beds remade, whether smoking is allowed, if non-family will be allowed to use the property and who will pay for damages.

*  The ownership agreement should also set forth how the property can be passed on to future generations.  For example, if one sibling dies, will their share be divided between their adult children?  What happens if they cannot afford to cover their share of expenses? Or, will the original heirs buy out their nieces and nephews, should one of the siblings die?

What If One of the Children is Already Living with Mom or Dad?

When one of the heirs has been living in the home with the parents at the time of their death, this can create special problems.  Their siblings may not want to kick them out of the house, but the person who is now living alone in the house may not be able to afford to pay their fair share of the expenses involved in maintaining the home.

On the other hand, the heir who is living in the home may be perfectly happy and capable of staying there, but the other siblings may feel disinherited.  They may want to be able to either use the house themselves, or sell it and get the cash.  Either way, the parents should make it clear what is to happen with the home after they die.

Should You Put One Child's Name on the Deed?

According to experts, the worst decision you could make may be to put the name of one of your children on the deed.  That is because the house will automatically become the property of that child.  You may hope that your child will be fair with their siblings, but that does not always happen.  This can cause tremendous conflict between your children.

The exception to this would be if the house then becomes the inheritance of that child and the other children are left a substantially equal share of other assets ... such as stocks or retirement accounts.

If you are leaving real estate property to your heirs when you die, it may be a good idea to read one of the books below.



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