Many of us have fond memories of visiting our grandparents at their summer property, whether at a beach house on Cape Cod or in the middle of the woods in the Berkshires. But what happens to this property once your grandparents (or parents) die? Who gets to decide how a summer property is maintained or distributed? The death of older generations can result in many competing interests – children, grandchildren, a grandparent’s significant other – from which unanticipated problems can arise.
If a grandparent dies with estate planning documents in place (such as a will and/or trust), those documents will typically determine the disposition of the grandparent’s assets, including the summer home.
- It may be simple – for example, the grandparent’s documents could simply state that all property (including the summer home) is to be distributed outright in equal shares to children.
- Alternatively, they may choose to allocate the summer home to a select number of individuals. Perhaps it goes to those who visit the property frequently or reside close by and can more easily enjoy it.
- A third option is for the property to remain in trust for the benefit of family members. There may be a dollar amount set aside to assist with maintaining the property or the grandparent may require family members to help with these carrying costs.
- Alternatively, the grandparent’s estate planning documents could direct the sale of the home but offer family members a right of first refusal before it is sold.
These are not the only ways a summer home may be distributed. The benefit of having an estate plan in place is that drafting the plan can allow for flexibility when disposing of assets.
But There Is No Estate Plan!
Suppose a grandparent dies without estate planning documents in place. In that case, their assets (including the summer home) will be distributed in accordance with the laws of intestacy. In Massachusetts, if an unmarried grandparent dies and is survived by all of her children, all assets will be divided equally between the surviving children. If a child were to predecease their parent, leaving children, the surviving children – grandchildren – would take their parent’s interest in the property.
It’s That Simple?
These options may seem relatively straightforward, but complications arise when individuals are not on the same page. For example, if the summer home is supposed to be distributed outright to multiple children (whether under the terms of the estate planning documents or by way of intestacy law), not all the children may be interested in using and maintaining the summer home. Or, what if a grandparent drafted their estate planning documents decades ago but died, leaving behind a long-term significant other they intended to allow to use the property without having updated their documents to reflect this intention?
What Are Some Solutions?
Many of these issues may be resolved by a written agreement, such as a non-judicial settlement agreement, among the individuals interested in the property.
A non-judicial settlement agreement is an agreement that interested parties may enter into without requiring court involvement. For example, suppose the summer home is to be held in trust for the benefit of a grandparent’s descendants but one child does not intend to use the summer home. In that case, the descendants (children, grandchildren) and the trustee may enter into an agreement allowing for buy-out of that child’s interest in the home. Of course, nothing is ever easy. Complications may arise when determining the structure of the buy-out. For example, assuming the buy-out is based on the property’s fair market value, how should the fair market value of the summer home be determined? Should it be based on the value as of a grandparent’s date of death? Or the value at the time the buy-out agreement is put in place? And who gets to select the appraiser who will determine the value? The grandparent’s personal representative named under the will or trustee under the trust? Or does each interested party hire an appraiser and agree to use the average value? Depending on the circumstances, all interested parties may want to hire legal counsel to represent their interests. Even in situations where the parties are amicable, legal counsel should be engaged to ensure that the agreement is properly drafted to cover unforeseen issues.
Agreements may also be constructed to address issues involving non-family members. What about the grandparent’s significant other, who everyone adores? Family members could agree that the significant other should also be entitled to enjoy the summer home and enter into an agreement to that effect.
Alternatively, what if a grandparent’s estate plan documents provide that the summer home is to be maintained for the benefit of family members and no family members are interested in the house? All interested parties could enter into an agreement directing the sale of the property with the net sales proceeds divided based on each family member’s interest in the summer home.
Now, what if all family members agree with the terms of a grandparent’s estate plan documents and do wish to maintain the home for use by the family? If the home is already in trust, then the trust terms may govern the use and maintenance of the home. However, if the home is not in trust, family members may want to take additional steps to protect themselves and their personal assets. For example, each family member who inherited an interest in the summer home could transfer their interest to a limited liability company that would hold title to the summer home in exchange for a membership interest in the LLC. The use of an LLC in this instance would protect each family member’s personal assets in the event of a lawsuit pertaining to the summer home titled in the LLC.
Family members may also wish to create an agreement outlining the actual usage of the property. For example, the weeks each family member(s) may use the property, whether it can be rented, and who is responsible for the cost of wear and tear on the property.
The distribution of illiquid assets on the death of a family member can be complex, particularly where potential competing interests are involved. It is important to engage experienced legal counsel to help navigate various issues that may arise when addressing the distribution of assets such as a summer property.
Follow Burns & Levinson on LinkedIn to stay tuned for the next post.