Inheriting A Family Home

When estate planning, it’s common for parents to leave their primary residence or a vacation home to their children. While your parents’ wills or trusts may specify who gets what percentage of the home, typically, you and your siblings will receive equal shares in the property. This can result in potential problems. For example, perhaps you and your siblings have different financial needs or can’t agree on what to do with the home.

Determine What to Do with the House

• Keep the home and share it among family members: This option allows everyone to enjoy the property, but it requires clear agreements on scheduling, allowable uses, and responsibility for maintenance and expenses.
• Rent out the home and share the rental income: Renting out the property can provide a steady income stream, but it involves managing rental activities, such as rent collection and maintenance.
• Sell the home and divide the profits: Selling the property can provide a lump sum of money, but it requires agreement on the home’s value and the selling process.
• Arrange for one sibling to buy out the others: This option allows one sibling to take full ownership, but it requires a professional appraisal to avoid disputes over the home’s value.

Other Considerations

If you decide to share the home, have a written agreement drafted by your attorney that outlines rules regarding scheduling, allowable uses, and responsibility for maintenance and expenses. If you choose to sell the home or arrange a buyout, obtain a professional appraisal to avoid disputes over the home’s value.

If you rent out the home, determine how you’ll handle rent collection, maintenance, and other rental activities. One option is to engage a property management company to handle the day-to-day management.

Another issue to consider is how the title to the property will be held. For example, if you and your siblings own the home as tenants in common, then your respective interests will pass to your heirs according to your individual estate plans. But if you hold the property as joint tenants, then when one sibling dies, the surviving siblings receive their share.

Tax Implications

Keep in mind that each of the options described above has different tax implications. For example, selling the home may result in capital gains tax, while renting it out may require you to report rental income on your tax return. It’s important to consult with a tax professional to understand the specific tax implications of each option.