When There’s More Than 1 Sibling, What Happens to the Inherited Family Home?

My estate shall be divided equally among my 3 children. That’s probably the most common final directive in a last Will and Testament. But what happens when most, if not all, of an estate’s assets are real property. Think: the family home.  The most common property siblings jointly inherit is a house. How do you divide that very tangible asset among 3 people?

In a best-case scenario, the siblings would agree unanimously on a fair and equitable settlement: Sell the home and split the proceeds equally. Distribute other assets so one heir retains the property or negotiates buyouts for those wanting cash.

Flaws of Nature

But human nature isn’t always so rational…or even kind…especially when there’s a decent amount of money at stake. What happens when siblings are counting on an inheritance, or their financial needs are different? What if one sibling has devoted her life to caring for their parents? What happens if there’s already acrimony among the siblings in the first place?

Unfortunately, as is often the case, specific instructions regarding the disposal of the property are not provided in the decedent’s estate planning documents. Consider these situations which pour fuel on the fire: One sibling has lived in the home taking care of the parent and wants to stay but can’t qualify for a mortgage to buy the others out. Or the caregiver may have a financial windfall from the deceased outside of the will—perhaps in jointly held property, bank certificates, or as the life insurance beneficiary. This may seem fair, and probably is, but that added benefit bestowed upon the caregiver adult child causes dissension among siblings, who then resent having to give the caregiving sibling an equal portion of the estate. And sometimes a sibling with greater wealth will have an unfair advantage to acquire the home.

Those Essential Family Conversations

There’s no better example of the need for important family conversations when parents are still healthy and fully in command of their cognitive capabilities—no better example for the requirement for estate plans with Wills or trusts in which everything is stipulated in black and white.

Even more important is this admonition: “Parents should never divide an indivisible asset in hopes that it will bring their heirs together,” says Lee Hausner, a Los Angeles-based psychologist and author of Children of Paradise: Successful Parenting for Prosperous Families, an instructional book about handling family assets. She’s seen contentious situations—even fights between siblings that turn physical.

Ideally, in these situations, the siblings must amiably turn to a Plan B. Here are the most common options for splitting an inherited home with siblings when the estate planning documents do not provide for this contingency:

• Selling the family home: This is the easiest solution…selling and dividing the proceeds equally or according to the percentage interest each sibling has been designated by the Will or trust
• Renting the family home: Siblings may not be ready to sell the cherished long-time family home even though no one wants it or is geographically well-located to live in it. Renting the home to generate income which they can split among them is a viable option.
• Buyout: If one sibling wishes to keep the home and the other siblings do not, the sibling who wants the home can offer to buy out their other siblings’ interests in the property. In this case, the sibling who wants to buy the home may not be able to afford buying out their siblings’ shares. They could, however, arrange to do so through a private agreement to make payments with or without interest over time on the property. They could also take out a mortgage on the property.

Sometimes There’s No Sibling Resolution

Still, sometimes none or some of the siblings are not ready to compromise. The real nail in the coffin is when one of the siblings thinks they’re getting the short end of the stick—or their own spouse who is not a bloodline family member starts sharing poisonous ideas—and this sibling begins to make waves.

If all else fails and an agreement cannot be reached, the siblings may have to involve the court in order to force the sale of the property and terminate their co-ownership. In this case, heirs who want to sell the home file suit to force its sale against the wishes of those who want to keep it. An impasse like this is called a partition action and can be devastating to a family.

Some Prudent Counsel

There’s no denying the fact that estate planning in which parents and adult children speak openly about their plans, finances, and other important issues that could become factors is essential. Rules of thumb surrounding these talks include:

• Refrain from dividing an indivisible asset to bring siblings together. It’s been shown time and again that it won’t work. Instead, find a way to make up the difference with money or other assets.
• Encourage siblings to reconcile their differences and urge them to forgive before it’s too late and becomes an untenable situation.
• Communication, transparency, and fairness are paramount. Be as equitable as you possibly can. If not, you are asking for trouble not only for your sons and daughters but also for your grandchildren.

At Phelan, Frantz, Ohlig & Wegbreit, we can help you facilitate these important conversations and provide you with the thoughtful guidance on sensitive issues. This will help your heirs avoid acrimonious situations when you are gone.

Call us at 908.232.2344 to get your estate planning underway or to review it. Planning today will ensure a brighter future for your loved ones tomorrow.