Family Home: Let’s Just Leave It To The Kids?

For many aging parents, the most valuable asset to be passed to the next generation is the family home, and given the housing market, inheriting a home can indeed be life changing. However, when siblings need to act together on what to do with the home, decisions are not always easy, or clear. What if one sibling wants to live in it, and others want to sell as quickly as possible? Are renovations acceptable? Estate planning attorneys urge careful advance planning when it comes to homes. Read on for practical guidance. 

Legal Rights, Economic Realities and Relationships

To ensure the value of a family home can be properly leveraged by the next generation, and prevent relationship stress and conflict, attorneys underscore the importance of proactive planning and communication. To avoid financial loss, and prevent costly probate litigation dramas, Conn Kavanaugh encourages these actions during estate planning: 

• Establish a Co-Ownership Agreement: Draft a formal agreement outlining voting thresholds for repairs vs. capital improvements, establishing a joint bank account for carrying costs, and defining protocols for property usage.
• Utilize Estate Planning Entities: Parents planning the transfer of a family home can structure ownership through a revocable trust or a limited liability company with an operating agreement that explicitly defines management rules, buyout mechanisms, and decision-making authority.
• Obtain an Independent Appraisal: Before commencing any work or listing the home, secure a professional appraisal to establish a neutral baseline for market value.

Multiple Beneficiaries: Joint Inheritance

It’s very typical for parents to give the family home jointly to all of their adult children. When this is the plan, it’s wise to understand that multiple beneficiaries have the same basic options as a single beneficiary who inherits a home, with the added challenge that they must agree on how to proceed with the upkeep of the home (e.g. utilities, insurance, security, etc.)  mortgage if there is one,  or sale and division of proceeds:

Any option requires all beneficiaries to be on the same page. One or more beneficiaries can buy out the shares of the other beneficiaries, although higher home prices and mortgage rates could make it impractical for one or more beneficiaries to buy out the other beneficiaries. If a consensus cannot be reached, the court may order the sale of the property and a division of the proceeds.

Because inherited homes tend to be decades old, they typically require investment either to “maximize market value or accommodate modern living,” and in Kavanaugh’s experience, a lack of careful planning can lead to these types of sibling disputes:

• The Flipper Sibling: One sibling wants to invest tens of thousands of dollars in high-end kitchen and bath upgrades to maximize the eventual sale price, while the others prefer a quick, “as-is” sale to liquidate the asset.
• The Resident Sibling: One sibling moves into the home and initiates alterations tailored to their personal lifestyle, expecting non-resident siblings to foot their “fair” share of the bill.
• The Unilateral Sibling: One sibling, without consulting anyone, hires contractors to tear down walls or replace the roof and subsequently demands immediate reimbursement from their other siblings.

Good To Do: Carefully Designate Fiduciaries

A key aspect of proactive estate planning is the careful designation of the fiduciaries responsible for administering your arrangements. If you write a will, you will name an executor (or personal representative in some states) to settle your estate and distribute assets. If you create a trust, you will name a trustee to manage and safeguard trust property for your beneficiaries. By selecting and preparing your fiduciaries ahead of time, you can ward off the potential for conflict and unnecessary stress down the road. 

Because fiduciaries manage sensitive assets and court-monitored affairs, they may be required to secure estate bonds before commencing their duties. An estate bond is a type of  fiduciary bond—a formal financial guarantee in the form of a three-party contract between the court, the fiduciary, and a surety company—that ensures the estate and its beneficiaries are protected against mismanagement, fraud, or error.

Navigating the bonding process doesn’t have to slow down estate planning and administration. Colonial Surety Company makes it easy, fast, and affordable for executors, trustees, and personal representatives to obtain estate and all types of fiduciary bonds. 

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Just select the bond needed, send it to your client for payment, and then download, e-file or print the bond. Our fiduciary bonds include: administrator, estate, executor, guardian, personal representative, probate, surrogate, trustee, conservator and the list goes on. Court bonds include: appeal, supersedeas, injunction, replevin, receiver and more. 

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