Families can be complicated, blended families even more so.
This is never more apparent than when it’s time for a family to transition their house to the next generation. Blended families in particular -- second (or third or fourth) marriages with children from previous partnerships and/or children together -- face special challenges.
There are two types of issues at play in these situations: familial and financial
The familial issues differ depending on the family, and they amplify the financial ones. The guiding principle to my mind is to structure ownership of real estate to make it easy on the heirs and to minimize the estate tax, in that order. But that’s like saying divorces should be inexpensive and you shouldn’t disrupt the family. It doesn’t always happen.
Whatever the family makeup, if you have assets and heirs, you’ll want to consult a trust and estate attorney. However -- not instead of professional help, but in addition to it -- it is important to know that while your circumstances may be unique, almost all families have challenges. The magnitude of the problem seems to be in lock-step with that of the asset and the number and relationships of heirs.
How you own real estate has an enormous impact on what happens to it when you die. It is never too soon to consider ownership; the best time to set up a deliberate ownership structure is before you buy, so you do not have to change the title later. It’s also never too late to reconsider your property’s ownership. If there has been a change in your or your heirs’ marital or familial status, talk with counsel as soon as possible.
Your real estate agent does not need to be included or even know of your plans. Nonetheless, this is a topic worth addressed here because you may need to call upon your agent for assistance in some aspects of your planning.
Many of my clients who have set up a Qualified Terminable Interest Property (QTIP) Trust [http://www.nolo.com/legal-encyclopedia/qtip-trusts.html] ask me to report the fair market rental value of their vacation home. Although they have no plans to become landlords, they will “rent” the property from the trust. This is how it works: The trust owns the property and the children are the trustees. You’re the tenant, with a life tenancy so you can remain in the house as long as you want. The trust passes to the heirs before you die so they don’t have the estate tax, and the rent you pay allows the trust to maintain the house.
In other instances, I have been asked to help healthy parents of adult children to prepare their house for sale. They, the parents, want the eventual property sale to be as smooth as possible for the children when “the time comes.” The preparation is the same I suggest for any seller of long owned property.
- Start with an inspection, the same kind a purchaser will undertake. Complete all repairs indicated.
- Obtain a new survey.
- Update the Certificate of Occupancy.
- Ask your attorney to search your title, correct any exceptions.
- Get rid of the stuff you no longer need and/or things your heirs want.
Giving away small items to heirs is a good way to open the harder conversations about disposition of the major assets. It’s also a good way to prepare the house for a sale and will be way less daunting a task for your children if they know your wishes. Seeing how they react and deal with one another will afford you the opportunity to advise and guide them.
There are no ways to uncomplicated long-standing conflicted familial relationships. As the parents, it may be easier to deny this will ever be and hope the children will resolve their issues and take over for you when need be. But if your wishes are known, the details transparent, and expectations managed, the real estate transaction will be smoother. If it’s sold after your passing, the estate will be settled sooner, with less time and money wasted.
© 2016 Diane Saatchi