Housing Counsel: When Siblings Squabble
by Benny L. Kass
Question: My 75 year old widowed mother currently owns and lives in a single family house. After my father died a few years ago, my mother put in her Will that on her death, her attorney would oversee the sale of her home, and the sales proceeds would be divided equally between myself and my two siblings. Apparently, since my mother knew that her children are not close, she thought this would prevent unnecessary squabbling. However, now that the real estate market is doing well, my mother has changed her mind -- and her Will. She wants to leave the house to the three of us. My husband and brother want to keep the house in the family as an investment. My sister does not seem to care, and I want to sell the house. Obviously, this is causing even more discomfort within our family. What should we do? Answer: I am always amazed when I hear children complaining about the Last Will and Testament that their parents have made. While the children certainly can have some input, the final decision rests solely with the maker of that Will. Right or wrong, your mother has decided to leave the house to her three children. Perhaps she is thinking that this may bring the family closer together. Your situation is not uncommon. We often see situations where momma leaves her house here in the District to her two children. One child lives in the house, and wants to keep the property, while the other lives out West and would like to get her share of the sales proceeds. Ultimately, there is a legal remedy, which is called "partition." The Courts throughout this country have made it clear that if two or more people own a piece of real estate, and one of the parties wants out of the deal, that party can file a lawsuit entitled a "Partition Action," and the Courts will force the sale of the property, so that the proceeds can be divided among all of the owners. A recent District of Columbia Court of Appeals case confirmed this, when it stated: This unilateral right of partition makes it possible for any dissatisfied cotenant to, in effect, withdraw from and dissolve the quasi-partnership that cotenancy entails. The sale can be private or public. A private sale is where the property is listed with a real estate broker who markets the property just like any other house that is for sale. A public sale takes place at the Courthouse, after advertisements are placed in local papers announcing the sale. However, filing a lawsuit is time consuming and expensive. Typically, the only winners in such a suit are the lawyers handling the case, any real estate agents involved in the sale, and speculators who may be able to purchase the property for less than its true market value -- especially at a public sale. Have you talked with your two siblings? Do they understand that if you all will keep the house, that someone has to maintain it? Will you rent it out, or does anyone want to use it for their own purposes? You will need a written partnership agreement, which will spell out such matters as: - who will manage the property?
- who will be in charge of the financial aspects of the property -- i.e. paying real estate taxes and insurance, handling rental income, and arranging for the filing of yearly tax returns should you all decide to rent out the property?
- how and when will any profits be distributed?
- what happens if there is a shortfall and moneys are needed immediately?
- what if one or more of your siblings want out of the partnership?
- what if one of the siblings dies?
You should consult an attorney or a tax accountant, who can explain the tax consequences of selling immediately after your mother dies as compared to hanging on to the house and keeping it as rental property. The attorney should also advise you how the three of your should hold title to the property. However, your attorney can only suggest the best method of holding title; he cannot dictate your wishes to your brother and sister. Your brother wants to keep the house when your mother dies. Can he afford to buy you and your sister out? If so, that may be the best solution. The property can be appraised, and your brother will pay you and your sister each one-third of the value of the property. Incidentally, this will be a non-taxable event for you, if the property is sold at a price based on the value of the house on the day your mother dies. There is a concept in tax law called the "stepped up" basis. This means that the value of the house on the death of the owner becomes the tax basis for the heirs. Let's look at this example. Your mother paid $100,000 for the house many years ago. On the day she dies, it is worth $300,000. You and your siblings inherit the house, and your collective basis for tax purposes is $300,000. If you were to sell it for $300,000, none of you would have to pay any capital gains tax. On the other hand, if you keep the property and subsequently sell it for $400,000, you would have a gain of only $100,000 on which you would have to pay a tax. In your situation, if your brother pays you one-third of the value of the property at the date of your mother's death, you will not have to pay any capital gains tax. But aren't we getting ahead of ourselves? This is a little "ghoulish", since you have already buried your mother while she is alive. The first thing the three of you should do is call for a family conference. You should all meet with your mother, and have a free and open discussion of the problems you believe you will encounter. Perhaps an amicable solution can be reached at this family discussion -- such as those who want to keep the house will buy out those who do not. Perhaps your mother will realize that it was a mistake to change her Will, and she will modify it again. But keep in mind: it is your mother's decision -- and hers alone -- as to what she wants to do with her house. She may even think to herself that the house will just be too much trouble for her three children, and decide to give her house to her favorite charity. It's her house and it's her call. | 
