Sometimes when creating their estate plan, parents will place their home in a trust and designate that it will be divided among their adult children after they have passed away. They may feel like this is the fair way to handle it because the children will each own an equal share.
However, leaving a home to multiple beneficiaries can cause conflict among them. Even if they agree on what to do with the property, handling such an inheritance can be complicated. It requires sound legal advice as well as the guidance of real estate, financial and tax professionals.
Sometimes, siblings or other co-beneficiaries agree to put the home on the market and split the proceeds. However, often one or more of them wants to keep the home — either to live in or as an investment property. If more than one beneficiary wants and can afford the home, things can get tricky. They have to find a way to resolve the situation — sometimes by going to court.
If it’s agreed that one beneficiary will keep the property and he or she will buy out the others, experts say that it’s essential to remember that this is a business transaction, even when it involves your family. That means having the property appraised, getting your own real estate agents and putting official agreements in place.
People are often willing to buy out siblings or other co-beneficiaries at less than the fair market value. However, that can cause serious tax problems for the person who keeps the property when he or she decides to sell it later. Property owners won’t be able to claim as much depreciation if the value declines. They may have to pay taxes on big capital gains if it increases in value.
If you have inherited a property, whether individually or with co-beneficiaries, your ability to make decisions may be clouded by emotions — particularly if it was the home you grew up in or a beloved vacation home.
That’s why it’s essential to consult with an experienced estate planning attorney. He or she can go over your options with you and work to help ensure that your interests are protected, regardless of what you decide to do with it.
Source: Realtor.com, “In a Home Trust, How Does One Beneficiary Buy Out the Others?,” Julie Ryan Evans, accessed Oct. 10, 2017