Clients often tell us they want to keep their home in the family. Often they tell us that they want to make sure that their offspring will always have a place to live. Sometimes they worry about one child’s ability to afford a home, but want to be “fair” to other children. Or they expand on the personal attachment every child in the family has with the place where they all grew up. We often hear stories about the happy times in the family home.
A few weeks ago we talked about this phenomenon in one of our weekly podcasts. We talked about maintaining a home for spouses, significant others and (yes) children who might need housing assistance. But before and since that podcast discussion, we have had innumerable clients tell us they have a special concern about keeping the family home in the family for generations, at least.
There are legal tools to accomplish this goal
To be clear, there are several ways to accomplish the result. In this discussion we are not about to tell you it can’t be done. It can, by one of these mechanisms:
- A trust can hold the family home for at least several generations. Of course, that assumes that someone can be the trustee, and that the costs of maintaining the home can be somehow assured. More on that later.
- A life estate for the one child (or other family member) who needs housing support can assure their right to live in the home for their lifetime. On the death of the life estate holder, the home can revert to other family members. Meanwhile, the life estate holder pays the taxes, insurance and upkeep costs. Or at least that’s the way it should work.
- A reliable and responsible family member can receive the property and manage it with your goals in mind. Of course, they might not outlive the time you expect the home to be available. And they just might marry, divorce, have additional children, get in debt, or … well, you get the picture.
What’s wrong with the idea?
Based on our professional experience, we almost always try to discourage clients from long-term restrictions on the family home. There are a number of reasons to be cautious about the idea. We see problems arise in many cases, and we find ourselves unraveling arrangements made years (or decades) before, after family members drift apart and original goals seem unimportant or unreachable. Among the problems we often see are these:
The house might not be perfect for your heirs
You might think your home is perfect. After all, the daughter (or son) you want to provide for grew up there. They are comfortable, and the house has worked well.
But after your death, that will probably not continue to be true. Without you living there, the space configuration won’t work as well. Does your child want to move into your bedroom? Will the arrangement work well for a live-in caretaker?
Put another way: if you were hunting for the perfect house for your child (or spouse, or other beneficiary), would your house be on the list? If you’re honest, it probably would not.
Besides, have you delayed making improvements for years? There will be costs associated with taking over the house. Will it need modifications for your child’s disability? A separate entrance for live-in caregivers?
On top of that, you’ve been able to live there comfortably because you have some resources that your child might not have. How will they pay taxes, insurance, and upkeep? Or do you imagine that they’ll just skip any upkeep and let the house continue to deteriorate — and leave a depreciated property to your other heirs? The truth is that keeping your home in the family is a challenging project even in the best of circumstances.
It takes some serious money to maintain the house
You plan on having your son live in the house and paying all the upkeep costs, right? What if they don’t? Will you be OK with the house going to public sale for non-payment of property taxes? Or your daughter deciding to forego insurance on the house she lives in because, well, she doesn’t actually own it?
Dividing the current possession from the ultimate ownership necessarily creates a conflict. The current occupant doesn’t see the importance of paying maintenance costs, since they don’t benefit from those payments in the long term. The remainder owners see that tension as a direct assault on their ultimate inheritance.
In order to make sure that the system works, you need to leave a significant amount of money along with the house. That means a trust rather than a simple life estate. It also means locating a trustee, spelling out the rules for what happens if the occupant doesn’t (or can’t) make their payments, and having a reserve to cover emergencies.
Plus, it means reducing the current inheritance of the other, non-resident, family members in order to protect the house for them (or more likely their children). Once again, keeping the family home in the family for multiple generations is problematic — and often expensive.
Family disagreements commonly arise
Because there is a built-in conflict opportunity in splitting the interests, we often see family disagreements arise out of these kinds of arrangements. It can be a serious problem among children, where one is in need of protection and the others may have to wait to receive any share of the family wealth. It is much worse if the plan is to let multiple family members have immediate and equal access.
You have a property that’s been in the family for multiple generations, and where your family has fond memories of all getting together? Great. Leave it to one of your children, equalize what goes to the others, and ask the child who receives the property to please be generous. But don’t make your children involuntary partners in a difficult relationship.
We promise that one child will want to spend every summer in the family vacation home. Another will want to drop in on short notice and will be disgruntled to have to schedule in advance. The third will simply not visit; either his/her kids don’t really like the lake, or their spouse doesn’t get along with the in-laws, or they spend their summers traveling — or something. Then they can all dispute who should pay how much of the taxes, upkeep and insurance. Once-happy family memories will be colored by disagreements over the arrangement you leave them with.
Does it really never work?
No. Sometimes it works. But we think those are the exceptions, and the rule is that keeping the home in the family is a mistake. It certainly should not be the driving, organizing force in your estate planning.
At least that’s how we see it. And that’s why we try to discourage you from your multi-generational plans for the family home.