How to split a property asset?
September 4, 2007 12:54 PM Subscribe
My father and his brother currently own a sizable piece of property in upstate NY. They each own 50% of the property. My uncle will eventually leave his half to his three sons, and my father will leave his half to his three daughters (which of course, includes me). Due to health reasons, there is a good chance my uncle will move elsewhere and transfer his ownership to my cousins in the near future.
Herein lies my father and my concern. We love this property. My sisters and I grew up there. Someday I want to raise my family there. It is quite literally my favorite place in the entire world. My cousins never actually lived there and are starting their families elsewhere. We are worried that, when the ownership passes over to them, there is a good chance at least one of them will want to “get his share” in the form of money. What happens then? Would we (the other shareholders) be legally responsible for giving the person in question the monetary equivalent of one sixth of the property’s value? I doubt we’d have that kind of money, so I guess we’d have to cannibalize the property and sell off a chunk to raise funds. Which would be heartbreaking.
Hey, I don’t blame my cousins if they DID choose to “cash in” (for lack of a better term) their share of the property. They have their lives elsewhere and are raising families and maybe they’d rather have a nice amount of money than own one-sixth of a property they don’t even use! That’s absolutely understandable. I mean, for that matter, maybe even one of my sisters might find themselves in a desperate situation one day and prefer the money instead of the property asset. I’m just wondering how something like that would/should be handled.
I know I’ll eventually have to speak to a lawyer about this, but I was just wondering if anyone has any advice or perhaps anecdotes of similar situations to share?
Herein lies my father and my concern. We love this property. My sisters and I grew up there. Someday I want to raise my family there. It is quite literally my favorite place in the entire world. My cousins never actually lived there and are starting their families elsewhere. We are worried that, when the ownership passes over to them, there is a good chance at least one of them will want to “get his share” in the form of money. What happens then? Would we (the other shareholders) be legally responsible for giving the person in question the monetary equivalent of one sixth of the property’s value? I doubt we’d have that kind of money, so I guess we’d have to cannibalize the property and sell off a chunk to raise funds. Which would be heartbreaking.
Hey, I don’t blame my cousins if they DID choose to “cash in” (for lack of a better term) their share of the property. They have their lives elsewhere and are raising families and maybe they’d rather have a nice amount of money than own one-sixth of a property they don’t even use! That’s absolutely understandable. I mean, for that matter, maybe even one of my sisters might find themselves in a desperate situation one day and prefer the money instead of the property asset. I’m just wondering how something like that would/should be handled.
I know I’ll eventually have to speak to a lawyer about this, but I was just wondering if anyone has any advice or perhaps anecdotes of similar situations to share?
Hey, I don’t blame my cousins if they DID choose to “cash in”
ooh, so close. I think the phrase you were looking for is "cash out".
Interesting situation, I am in a similar one myself, although both my immediate family and my uncle's immediate family use our land as more of a private campground/park.
posted by ArgentCorvid at 1:05 PM on September 4, 2007
ooh, so close. I think the phrase you were looking for is "cash out".
Interesting situation, I am in a similar one myself, although both my immediate family and my uncle's immediate family use our land as more of a private campground/park.
posted by ArgentCorvid at 1:05 PM on September 4, 2007
Well, you can't have it both ways; if you want to give people the ability to 'cash in' and sell their share of the property, than you run the risk of having it all parceled off to developers, or at least non-family owners.
It would be possible, I'm sure, to set up a real-estate trust that you and the other 'owners' could manage, which would avoid having anyone own bits of the property personally, and thus ensure that it stayed in the family and couldn't be sold off (at least not without the unanimous consent of all concerned). But this would by design limit people's ability to convert the property to cash if they're not using it.
Maybe if you did set it up in trust in a way that couldn't be parceled off and sold, you could allay the fears of the relatives who don't want to live there, by reminding them that they could always rent or long-term-lease their share of the property, and get an income stream out of it ... if not an actual lump of cash. If the property is in a scenic area there might be significant rental income potential, at least seasonally.
In any case you're going to first have to get some of the other people involved to realize your concerns, and then get a good wills-and-trusts attorney to explain some of your options and set things up.
posted by Kadin2048 at 1:06 PM on September 4, 2007
It would be possible, I'm sure, to set up a real-estate trust that you and the other 'owners' could manage, which would avoid having anyone own bits of the property personally, and thus ensure that it stayed in the family and couldn't be sold off (at least not without the unanimous consent of all concerned). But this would by design limit people's ability to convert the property to cash if they're not using it.
Maybe if you did set it up in trust in a way that couldn't be parceled off and sold, you could allay the fears of the relatives who don't want to live there, by reminding them that they could always rent or long-term-lease their share of the property, and get an income stream out of it ... if not an actual lump of cash. If the property is in a scenic area there might be significant rental income potential, at least seasonally.
In any case you're going to first have to get some of the other people involved to realize your concerns, and then get a good wills-and-trusts attorney to explain some of your options and set things up.
posted by Kadin2048 at 1:06 PM on September 4, 2007
Another option - if you're willing to put in some work - what about renting the property/cabin out? It then becomes an income stream either for all of you cousins OR will allow you to pay your cousins off for their portions.
My boyfriend's dad rents out his lake cabin and has found that once you find a family or two, word of mouth spreads. He doesn't advertise as much as he could and he has requests for all weeks in the summer. If he wants to be up there for a week, he doesn't rent it. You can also pay a local person to manage the rental for you.
posted by k8t at 1:14 PM on September 4, 2007
My boyfriend's dad rents out his lake cabin and has found that once you find a family or two, word of mouth spreads. He doesn't advertise as much as he could and he has requests for all weeks in the summer. If he wants to be up there for a week, he doesn't rent it. You can also pay a local person to manage the rental for you.
posted by k8t at 1:14 PM on September 4, 2007
Legally speaking, yes, a partial owner can go to the court and have the property partitioned. This allows them to sell off their portion; frequently the other co-owners have the right of first refusal, but the sellers can demand market rate for the property. So, you either pony up 1/6 of the value of the property, or you watch 1/6 of it fall into outside hands. Or you take one of the above suggestions and otherwise come to a more creative solution. Like most estate questions, the courts have a standard way to handle this, but if you can come up with a custom solution you'll probably all be happier.
This link is for California law, but it's similar in most common-law US jurisdictions (don't ask me about Louisiana). This is the New York code on partitioning.
posted by katemonster at 1:25 PM on September 4, 2007
This link is for California law, but it's similar in most common-law US jurisdictions (don't ask me about Louisiana). This is the New York code on partitioning.
posted by katemonster at 1:25 PM on September 4, 2007
Well, you can't have it both ways; if you want to give people the ability to 'cash in' and sell their share of the property, than you run the risk of having it all parceled off to developers, or at least non-family owners.
Not true! Not if the whole property, in its entirity, is held under a corporation. Each cousin would thus be a shareholder. Also under the terms the other cousins could have the right of first refusal on the shares and thus would have first dibs at buying should one of the others cash in or out or whatever term you choose to use.
They don't stop making Buicks because someone sells their shares of GM stock do they?
posted by Pollomacho at 1:48 PM on September 4, 2007
Not true! Not if the whole property, in its entirity, is held under a corporation. Each cousin would thus be a shareholder. Also under the terms the other cousins could have the right of first refusal on the shares and thus would have first dibs at buying should one of the others cash in or out or whatever term you choose to use.
They don't stop making Buicks because someone sells their shares of GM stock do they?
posted by Pollomacho at 1:48 PM on September 4, 2007
You could bypass the uncertainty of the kids, and get together with your sisters and father and buy your uncle out. That way he still has a nice chunk of cash to give his kids, and you only have to deal with one person (the uncle) rather than his three children.
posted by furtive at 2:06 PM on September 4, 2007
posted by furtive at 2:06 PM on September 4, 2007
++trust
Allow shares to be sold (with right of first refusal).
posted by Netzapper at 3:15 PM on September 4, 2007
Allow shares to be sold (with right of first refusal).
posted by Netzapper at 3:15 PM on September 4, 2007
a real-estate trust that you and the other 'owners' could manage
I know someone who did this, it was all spelled out in advance how the on-property manager would be elected and qualified, etc.
posted by StickyCarpet at 3:24 PM on September 4, 2007
I know someone who did this, it was all spelled out in advance how the on-property manager would be elected and qualified, etc.
posted by StickyCarpet at 3:24 PM on September 4, 2007
Best answer: My wife's family had a somewhat similar situation, except it's been in the family for 4 generations. Most of the land is jointly owned in a partnership. In addition, most of the owners have a lot where they can put a house. When one of the partners fell on hard times and wanted out, no one in the family could afford to buy him out, so they did a valuation and then partitioned out a suitable parcel which he sold.
It's worked pretty well for the most part. Everyone is unhappy about the missing parcel, but those are the breaks. Because the land is income earning, people haven't been in such a hurry to sell, though at this point, some of it has appreciated enough that everyone is onboard with selling a parcel on the periphery for development.
I think individual ownership of homesites combined with joint ownership of the land would be the best way to go, and it would be best to start addressing things sooner than later (people often get much less rational when a parent dies). With the joint ownership, you have a lot of flexibility for deciding which land gets sold off if it becomes necessary to do so.
posted by Good Brain at 5:18 PM on September 4, 2007
It's worked pretty well for the most part. Everyone is unhappy about the missing parcel, but those are the breaks. Because the land is income earning, people haven't been in such a hurry to sell, though at this point, some of it has appreciated enough that everyone is onboard with selling a parcel on the periphery for development.
I think individual ownership of homesites combined with joint ownership of the land would be the best way to go, and it would be best to start addressing things sooner than later (people often get much less rational when a parent dies). With the joint ownership, you have a lot of flexibility for deciding which land gets sold off if it becomes necessary to do so.
posted by Good Brain at 5:18 PM on September 4, 2007
Best answer: "I doubt we’d have that kind of money, so I guess we’d have to cannibalize the property and sell off a chunk to raise funds."
You could see if the cousins or ideally your uncle would hold a private mortgage for the property they want to sell. That allows you to spend several years buying it from them instead of having to come up with the cash immediately.
posted by Mitheral at 5:55 PM on September 4, 2007
You could see if the cousins or ideally your uncle would hold a private mortgage for the property they want to sell. That allows you to spend several years buying it from them instead of having to come up with the cash immediately.
posted by Mitheral at 5:55 PM on September 4, 2007
NotALawyerOrAccountant but... for inheritance tax reasons, it may be especially preferable to get this settled before anyone dies, especially if you elect to go the corporation route.
The last thing anybody wants is to be forced to sell due to Uncle Sam... and then give him a cut of the proceeds.
(Apologies if your uncle is actually named Sam.)
posted by SuperNova at 6:47 PM on September 4, 2007
The last thing anybody wants is to be forced to sell due to Uncle Sam... and then give him a cut of the proceeds.
(Apologies if your uncle is actually named Sam.)
posted by SuperNova at 6:47 PM on September 4, 2007
There are some good starting places above for you to consider with an attorney, but I'd suggest talking to your cousins first. The "how to" portion here functionally matters less than the approval of your uncle or cousins, and starting out with, "So, I talked to a lawyer, and..." has a way of making people defensive, even if it's in the very best faith. Maybe I'm misreading the situation, but it sounds a bit like you anticipate at least one of them not being so open to other options than cashing out.
I particularly like Mitheral's idea. By the same token, have you considered the possibility of your father mortgaging the property with a standard lending institution to cover buying out any cousins? You and your sisters could contribute to the payments, as well.
For what it's worth, I have cousins that I'm not particularly close with, and if a situation like yours arose and one of them said to me, "We love this property. My sisters and I grew up there. Someday I want to raise my family there. It is quite literally my favorite place in the entire world," I would be pretty strongly motivated to help keep it intact.
posted by averyoldworld at 10:57 AM on September 5, 2007
I particularly like Mitheral's idea. By the same token, have you considered the possibility of your father mortgaging the property with a standard lending institution to cover buying out any cousins? You and your sisters could contribute to the payments, as well.
For what it's worth, I have cousins that I'm not particularly close with, and if a situation like yours arose and one of them said to me, "We love this property. My sisters and I grew up there. Someday I want to raise my family there. It is quite literally my favorite place in the entire world," I would be pretty strongly motivated to help keep it intact.
posted by averyoldworld at 10:57 AM on September 5, 2007
Response by poster: thanks everyone for your input. i think the most feasible (for us) route would probably be the long term mortgage idea, as Mitheral and averyoldworld suggested. Good Brain also brings up a valid point that this should be at least start to be addressed now while everyone is still healthy and rational.
Eh... its a tricky situation. But at least I have a few jumping points now. Thanks!
posted by silverstatue at 7:56 PM on September 5, 2007
Eh... its a tricky situation. But at least I have a few jumping points now. Thanks!
posted by silverstatue at 7:56 PM on September 5, 2007
This thread is closed to new comments.
When 1 of my uncles became ill, it was decided that ALL of us kids (my mother's 2, one uncle's 1, and one uncle's 4, then in our 20s and 30s) would take our piece of the 1/3 then. So, my sister and I have 1/2 of a 1/3... and we, like your cousins, have moved away and don't plan on ever coming back. We all use to share it pretty equally when we were kids. In recent years, ill uncle has been up there A LOT.
Our solution? Sell to the cousins that live close by. Not everyone had the money to buy it, for sure, but a few did. It is now probably weird for those 4 sisters who did have 1/4 of 1/3 and now some of them have 1/4 of 1/3 + 1/2 of 1/3... but whatever, not my problem.
We also had something written into the contract that we were still each allowed 1 week a year at the property and that we had priority for a week in July or August. I think we have to notify the cousins by May as to what our prefs are. This goes on until my sister and I die. Our kids have no rights to the property.
So far this has gone relatively smoothly. It could get a lot more complicated in the future, I am sure. We did this all through a lawyer and even though everyone was civil, it was still uncomfortable.
posted by k8t at 1:03 PM on September 4, 2007