Estate Law

In a perfect world, siblings would all get along and the administration of estates would be easy, but that’s not how it always works out. The truth is, the promise and expectation of money can strain the best of relationships. If you and your brother or sister inherit real estate, you have options, but most of them depend upon cooperation or at least upon reaching an agreement with respect to what you will do with the property. Without an agreement you might have to resort to the court system.

If you and your siblings inherit a house, you probably own it in equal shares (i.e. 50-50, or 1/3-1/3-1/3) unless the decedent stated otherwise in her will. If you or one of your siblings wants to keep the property and the others want to sell it, that should be fairly simple to resolve. One of you might simply buy out the others: the sibling who keeps the property would only need to finance the other siblings’ shares. For example, if you wanted to keep the property, you would only have to finance half (or two-thirds, for example) its value. You can then give your siblings cash for their share and transfer the deed into your sole name. In that case, the expense would probably be minimal, for example, just closing costs and an appraisal to establish the property’s value.

If neither you nor your siblings can qualify for a mortgage with a third-party lender, the siblings who don’t want to keep the house can effectively finance the transaction themselves. This would not involve cash out of pocket or qualifying for a home loan. For example, if you want to keep the home, you can record a promissory note to your siblings for their shares of the appraised value. You could then pay them in monthly installments, with interest, to buy out their shares over time. The siblings who do not keep the property would then receive some extra income. It’s also possible to record a Deed of Trust, giving your siblings the power to foreclose if you default on the payments.

If all the siblings agree that keeping the property is NOT a priority, selling it or renting it out could be a solution. If your relationship with your siblings is good and you can get along as co-owners, you can rent the property and each take a little money each month from the proceeds. If one of you manages the rental, that sibling might receive a little extra portion of the rent proceeds as compensation. It would be very important in this case to make sure that the precise details of the arrangement are written down and agreed to, in order to avoid any hard feelings or feelings of being treated unfairly later on.

If the real estate market is strong, you might decide to sell the property instead, with each of you taking your share of the proceeds after expenses, commissions and costs. If the property is sold relatively shortly after you inherit, you may even avoid any capital gains tax because the value of the house (tax basis) is increased or “stepped up” as of the date of death of the decedent. You and your siblings (collectively) would only owe capital gains on the difference between the “stepped up” amount and the amount of the sale, if they are different.

If you and your siblings can't come to some agreement, it is likely that you will need to involve the court. You can file a lawsuit for partition, asking a judge to order the sale of the home so you can terminate your co-ownership. This can be complicated though. A judge will usually appoint a third party (i.e. a referee) to get the property ready for sale. You and your siblings will need to share the expense of the referee. You'll also have to pay a broker and possibly an accountant if the shares under the will are disputed. Unfortunately, this definitely reduces the profit (if any) that you will each realize and probably to a greater extent than if you had just listed the house for sale in the first place.

If these situations sound familiar to you or you simply want to avoid that possibility, we can help. Please give us a call at 540-322-1928 and we would be happy to go over your documents and make some recommendations on how you might proceed.