A few weeks ago, we took a family vacation to Panama City Beach, Fla. The ocean was wondrous. Like many wide-eyed tourists, we picked up real estate magazines and day-dreamed about owning a second home near the beach.
In spectacular East Tennessee, it is not uncommon to know a family who has a cabin in the Smokies or on one of our many lakes, rivers or streams.
My in-laws live on 10 acres with fruit trees, blackberry patches, and a fishing pond. My father-in-law helped build the home with his own hands. Larger farms are often home to multiple family members.
In these unique types of situations, one or more family members probably want to keep a special property in the family.
What happens to real estate after both mother and father have passed away? If their children are equal beneficiaries, they will likely inherit the property as “tenants-in-common” of equal divided interests. Then, after a sibling’s death, her ownership interest might pass to her spouse and/or children. As the property’s ownership structure gets more convoluted over time it is possible that nothing will ever get done without agreement. Taxes could become in arrears and the grass might reach knee height.
So it is a good idea to create a succession plan for your property. A detailed plan might prevent financial duress or reduce bitter family conflicts. It might start with finding out who is or isn’t interested in inheriting the property. An heir who lives far away or who has minimal financial resources may not be interested in inheriting a family property.
Next, you should consider the form of continuing ownership. What will best serve the family: A limited liability company or a trust or a partnership or a combination of structures? There is a need for leadership either in the form of a managing trustee and/or a family management committee. There needs to be an operating agreement that spells out how often each family member gets to use the property, such as an annual lottery.
The ownership and operating structure would also give the family a system for keeping the property maintained. In some cases, the parents might create an endowment, funded by savings or investments, to help pay maintenance expenses, taxes, etc.
What if someone wants to be bought out, now or later? What is the process? How will the property’s value be determined? The operating agreement would need to address as many contingencies as possible.
As one family law attorney was recently quoted, “People have to manage their family as much as, if not more so, than they manage their money.” This requires some difficult conversations about family relationships and it is wise for a parent not to wait until mental or physical deterioration necessitates planning.
It is also wise to consult an attorney and an accountant, and anticipate some messiness. From Grandmother’s pie plate to the family farm, passions may run deep and emotions can run high. A property plan is more than a way to preserve a piece of property; it can be a plan to keep a family together.