Search

Leaving a Family Home for Next Generations Can Create Conflict - Barron's

rumputhijauau.blogspot.com

The family home needs to be integrated into estate planning so future generations can successfully share a property.

Unsplash

If you recently enjoyed Thanksgiving with relatives in a beloved family home, it may be comforting to think that long after you’re gone your heirs will continue to gather in the same spot for joyful reunions.

Or will they?

Harmony surrounding an inherited family home is harder to achieve than many people think, says Justin Flach, managing director of wealth strategy at Ascent Private Capital Management of U.S. Bank in San Diego. 

While you may have already designated your beneficiaries and established tax-savvy wealth transfer strategies, what happens after the property is inherited is often not fully addressed—and that’s a mistake, Flach says.

“You have to ask yourself, ‘Have I set my family up for success in sharing a home?” he says.

Sadly, even the most cherished inherited family property can become a centerpiece of conflict between beneficiaries, especially in future generations when cousins, nieces, and nephews may not be as connected with each other as the original property owner had hoped. 

Most conflicts arise due to beneficiaries’ differences in their financial needs, emotional attachments to a home, and ideas about how to equitably divide the enjoyment of the property as a family grows, Flach says.

“There’s a lot of sentimentality around this planning along with the practical issues. One beneficiary might say they don’t love paying for upkeep because they have limited use of a property, another might say they need the liquidity, and others might want to keep the house to continue to have a place to gather,” he says. 

And there can be major personality rifts as the family gets larger, says Douglas Stokes, managing partner at the Stokes Family Office in New Orleans. 

Stokes advised a family in which an inherited property had been split into three parcels for three beneficiaries. When the grandchildren took ownership, tensions arose over who could use a road running through one of the properties, and the issue ended with a nasty lawsuit. 

“Parents may not think about the fact that beneficiaries might not like each other a couple of generations down the line,” Stokes says. “But from an estate planning perspective, you have to make the assumption people aren’t going to get along.” 

Open a Dialogue With Your Beneficiaries

The first step toward harmony is simple: Loop your beneficiaries into your planning. 

“Where I have seen problems is when parents don’t spend time speaking with their kids and strategizing with them so they can create a plan that works,” Flach says.

The easiest situations are when family discussions reveal who wants a property and who doesn’t, and there is enough liquidity in the estate to enable the assets to be equitably divided between beneficiaries who want to inherit the real estate and those who don’t. 

“Say mom and dad have a total estate worth US$20 million, including a family home worth US$3 million that only one beneficiary wants to move into and live in,” Stokes says. “In that situation it’s simple to have an appraisal, have siblings agree to the appraised value, and the rest of the estate can compensate the siblings for the lost value of the home.” 

In many situations all beneficiaries’ needs or desires can’t be met, but having a pre-agreed upon plan and process can help avoid future family divisions. 

Create a Pool of Funds to Cover Future Costs

Without proper planning, inheriting real estate can feel like a mixed blessing financially. What is supposed to be a generous gift can turn into a financial burden, Flach says.

“What heirs get along with property ownership are expenses, responsibilities, and liabilities. If you don’t provide a funding mechanism to assist them, conflicts can arise,” he says. 

Everything from property taxes and maintenance costs to eventual updates and renovations should be baked into your estate plan with a designated pool of liquid assets to cover costs, Flach says. 

First create a structure to own the property—either a trust or an LLC—and within that entity buy a life insurance policy whose payout can be used as a pot of money to pay for ongoing costs, he says.

Establish an Exit Strategy

Eventually certain beneficiaries may want to sell their stakes in the family property. “If there isn’t an exit strategy, that can cause problems,” Flach says.

Without an agreed-upon procedure, a co-owner could take legal action to force a sale or file a so-called partition lawsuit in which a court decides how to settle the matter—with one option being to sell the property at a public option and divvy up the proceeds among co-owners. 

This is another circumstance in which a life insurance policy held alongside a property in an LLC or trust makes a lot of sense, Flach says. Aside from covering ongoing expenses, the funds can also be designated for buying out a family member’s stake to smooth the process and avoid conflict. 

Formalize House Rules

Who gets to use the property for New Year’s? Are pets allowed? What about parties? 

The house schedule and rules addressing interfamily dynamics must be discussed, agreed upon, and put in writing, Stokes says.

Though this may sound overly formal for your family’s style, issues are bound to arise and when they do, you can point back to your agreement for a resolution. 

“The key things are making sure there is a clear understanding of the decision-making process and building in flexibility, because the family you are now is not the family you will be in 10 or 20 years,” Flach says. “If you address those two broad issues, you can reduce or eliminate conflict so your beneficiaries can enjoy your property and not feel it is a burden.

Adblock test (Why?)



"conflict" - Google News
November 29, 2023 at 12:59AM
https://ift.tt/VvBMCeJ

Leaving a Family Home for Next Generations Can Create Conflict - Barron's
"conflict" - Google News
https://ift.tt/IAiN8Ru
https://ift.tt/tfLj6ae

Bagikan Berita Ini

0 Response to "Leaving a Family Home for Next Generations Can Create Conflict - Barron's"

Post a Comment


Powered by Blogger.