We recently heard a story about a couple with a special lake property. They had five children and twice that number of grandchildren and more than a few great grandchildren. Everyone loved coming to Grandma’s house. They had canoe races, great picnics, and treasure hunts. There was always a jigsaw puzzle on the porch. Sadly, both Grandma and Grandpa passed during the COVID epidemic. Although they had discussions with family members about plans for the cottage, no plans were ever made. In fact, their will directed their executor to sell all their real estate (they had several properties) and to add the sales proceeds to generation skipping trusts established under the will.

Their estate plan had not been reviewed for years.

As in most families, not all the heirs had the means to consider purchasing the property and the beneficiaries could not agree on a price or a process that would allow one of them to retain ownership. Sadly, the cottage was sold, and the lack of direction created a situation that resulted in miscommunications and hard feelings.

If you have a special family property, some planning now will ensure that your family can continue to enjoy the property for years, or generations, to come. In planning for special places, the founding family generally wants to create opportunities for accumulating wealth, in order to carry on family traditions, all while promoting familial harmony. There are a number of contingencies to be considered and planned for, even if awkward, such as divorce, bankruptcy, or financial hardships due to health problems. Your heirs will have their own concerns.

Forms of Ownership

There are two basic issues that you will want to explore.

The first is whether you wish to organize future ownership by setting up an entity now or through your estate plan. Or, not knowing what the future looks like, you might prefer to develop a process for continued ownership that you hope your heirs will embrace.

The second issue is whether you want to provide for “sharing rules” if there will be multiple owners.

Set up an Entity

Many families consider setting up a family partnership, LLC, or a trust to own the property. In some cases, there are sufficient assets to endow a maintenance fund so that no one will have to worry about expenses or upkeep. Different forms of ownership are preferred in different states. Some may be more appropriate than others for particular family situations. A discussion with your tax advisor or estate attorney will help you learn which are most favorable for your location and situation. Spend some time now considering alternatives and discussing them with your family. Putting together a carefully crafted plan providing for an orderly transition of your property leads to the most certain results by providing for continuity of ownership. Discussing your plan with your family can eliminate contention and potential legal expenses.

Develop a Process

You can provide a letter or hold a family meeting to develop a process for dealing with ownership of your special property. This can be especially helpful when there are a lot of unknowns. Here are a few things that you will want to consider including in your process.

Establish a fair market value for the property.  You want to take some care here because you don’t want one person to have an advantage that will disadvantage other heirs. For example, an heir who is an executor or trustee has an unequal advantage when it comes to making decisions about the sale or distribution of property. We suggest recommending more than one appraisal by an accredited appraiser – not the local realtor. Some suggest unanimous agreement on the price. The established fair market value is the starting point for acquisition of the property whether by an heir or an outsider.

Who wants to buy the property? What if one or more beneficiaries want to purchase the property? Set a time frame for any interested family members to present an offer for purchase of the property.  A time limit should provide enough time for your heirs to consider their options for purchase and finance, while avoiding delays in the settlement of your estate. You might think about suggesting a disinterested party, like an attorney, as the final arbiter if more than one party is interested.

What about sharing ownership? If your heirs decide that sharing ownership is the right way to go, it is usually best to select an attorney to develop a plan for ownership, management and sharing.

Establish Sharing Rules

There are three aspects to sharing ownership and use:  financial, maintenance, and time/use. The most successful sharing systems are those that are simple and economically fair.  There are several use models to explore, and it is important to take into consideration extended family members like former spouses and pets. Sometimes an agreement to use outside management is the best choice.

Notes

1. Registration with the SEC should not be construed as an endorsement or an indicator of investment skill, acumen or experience.
2. Investments in securities are not insured, protected or guaranteed and may result in loss of income and/or principal.
3. Investment process, strategies, philosophies, portfolio composition and allocations, security selection criteria and other parameters are current as of the date indicated and are subject to change without prior notice.
4. This communication is distributed for informational purposes, and it is not to be construed as an offer, solicitation, recommendation, or endorsement of any particular security, products, or services. Nothing in this communication is intended to be or should be construed as individualized investment advice. All content is of a general nature and solely for educational, informational and illustrative purposes.