I work with many families who own real estate in a variety of capacities…home, vacation home, income properties, etc.  Many want to leave the property to one or more of their children, or other heirs.  That is a minefield!

“A whopping 68% of people say they plan to leave real estate—such as a home, vacation property, or land—to their heirs, according to an Ameriprise Financial study released Wednesday. Yet more than half—56%—haven’t shared these intentions…There’s an estimated $6.4 trillion in net worth that people over age 55 have tied up in investment properties, according to estimates from Realized, a platform that provides real estate wealth solutions.” (see Barron’s link)

A question I ask my clients is “Would you start a business today and force your children to be in business together?”  Usually, the answer is a resounding “NO.”  However, that is exactly what we are doing when we pass real estate on to multiple children or heirs.

Let’s look at the vacation home – how will the upkeep be paid, how will the new owners determine who/when it’s used, what are the “house rules,”  what if one owner does not live near the property and rarely uses it (that’s a big chunk of his/her inheritance usually), what if all the owners don’t want to keep the property well maintained and its value decreases?

With income properties, it can never be an “equal shares” distribution.  Taxes, market value, income stream, etc. will affect the value of the property to the heir.

Please, please, please have a discussion with your heirs/devisees/beneficiaries.  Do they want it?  Many times the answer is “no.”  Especially with a vacation home, an answer I often hear is “no, we are just here for Mom and Dad.”  If that is the case, reflect that in your documents – sell upon passing of X.  If one does want it, add “Right of First Refusal” language to your documents so you can set up a business-like structure to transition the ownership and take the “emotion” out of it so the other heirs/devisees/beneficiaries feel comfortable with the process.

This is a minefield but can be managed with the appropriate focus, discussions, and provisions ahead of time.

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