The Problem and Fixes for Forced Co-Ownership Through Inheritance

Sometimes you have to go through something to gain true perspective on the pros and cons. For example: Have you ever owned anything with someone who wasn’t your spouse? Think about a business partner you had, siblings, friends. Maybe it was a business or a property or something as simple as having had to share a car with your sister. Co-ownership with anyone is difficult, isn’t it?

Yet, your estate plan probably says, “I leave everything equally to my children.” That’s not a problem when a bank account can be divided straight down the middle. But what about the house or land or vacation home? You can’t split that down the middle or in thirds. You are, in effect, forcing co-ownership decisions onto them, which is difficult. And from my experience, “my kids are smart, they’ll figure it out” is a huge myth. Maybe your kids are smart. Maybe they do get along. But regardless of smarts or relationship, there are many opportunities for the wheels to fall off this “plan”.

Here are a few common examples of where your “I leave everything equally” plan will become a potential nightmare for your heirs.

1. One person wants the money – Do your children even want the property? What if one does and the other doesn’t? If they want to be bought out, what’s the fair price; fair market value, or is there a family discount? Money can lead to arguments and become a stressor. This might even lead to potential arbitration or litigation.
2. One person needs the money – What if the cash is necessary for one child? It could be a health event or disability, tough times or bankruptcy, or maybe just a change of priority. If one person wants to sell, the other may become forced to sell too.
3. Divorce – Similarly, what if the interest of one child now needs to be split in divorce. How is this situation going to be handled?
4. Funding and maintenance – Maybe the children are happy to keep the property. But will they agree to use, maintain, upgrade and share the responsibility?

My suggestion is to put in the work necessary to lay out the terms of co-ownership. Spell out the terms and impose them on the family. If you’re not comfortable dictating to them or having an open conversation about your and their wishes, consider requiring as a condition of inheritance that the heirs come to an agreement within a certain time frame after death, or the property must be sold. Set the framework for a sale, in your terms, so that doesn’t become an argument between them after you’re gone. And consider putting aside support money (assets or life insurance) for the property and take that resistance off the table.

We can all be hopeful that our heirs will be amicable and agreeable when we are gone. But proactive planning includes thinking about all the “what if” scenarios and paving a way forward no matter what. The “I leave everything equally” is ripe with peril. Because any asset worth keeping, is worth planning for.

The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual.

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