When doing their estate planning, parents always want to be fair with their children. Most often they try to accomplish this by leaving everything to the children in equal shares. While this may seem like a good solution, in practice, it can actually create lots of problems and it can end up be anything but fair.
Being family is one thing, but being business partners is another. As they say: money changes everything. If you inherit a business or property together with your siblings, like it or not, you instantly become partners. Some families manage co-ownership well, but in our experience, most don't.
Some of the issues that result from this forced co-ownership include disputes over:
- Who runs the day-to-day operations of the business?
- Who gets to use the property?
- Whether the property be rented? And, if so, who will manage it?
- Someone failing or refusing to contribute their share of the taxes, insurance, maintenance, and other expenses?
- Someone wanting to sell and others not.
These issues only become more complex if one of the owners dies and you must deal with their heirs.
In addition to the headaches of co-ownership, consider that:
- the inheritance could disqualify an heir receiving government benefits;
- incapacitated heirs cannot participate in important decisions (such as agreeing to sell); and
- liens can attach to the property because an heir has judgments.
The end result is conflict and tension between siblings that didn't exist before everyone became co-owners. In worst-case scenarios, the business shutdown or the property is lost to foreclosure.
These problems are not limited to siblings inheriting in equal shares. They apply whenever more than two individuals inherit, regardless of their respective shares.
This does not have to be the case. With the right planning, parents can be fair to their children without creating conflict and while preserving the value of the assets they leave.
We counsel clients through all stages of this process: planning the gift, receiving the gift, and settled disputes over the gift.
If you are planning to leave property to your family, or if you have inherited property together with others, contact us to discuss your options.