One of the more common matters in estate litigation concerns real property transferred from parents to children. Unlike other testamentary assets, division of real property can become complicated as siblings become joint owners of property and partners regarding the real property, whether or not they want to enter a partnership with their siblings.
When family members cannot agree on the final distribution of the real property, litigation brings the parties to a resolution, often using a process called partition. This applies whether the real property is a single family home or a multi-million dollar real estate portfolio.
By commencing partition proceeding, the person who commenced the proceeding is asking the Court to divide the partnership that owns the real property. At first, the Court will determine if one party is willing to sell their share to the other party. If deemed necessary, the Court can appoint a Receiver to assist the owners in reaching a settlement and acts as the Court’s eyes and ears. While the individuals retain ownership of the property, a Receiver collects all rents and maintains and manages the property. The Court will set the fees for the Receiver but they come out of the proceeds of any sale.
If the parties cannot reach a settlement, the Receiver can request permission from the Court to sell the real property to a third party. The Court will set the Receiver’s compensation and approve the other expenses in connection with maintaining and selling the real property and order them paid out of the net proceeds. The parties share the balance.
This solution is not without inequities. If one party has kept meticulous records of expenses and the other parties have not, the Court cannot award reimbursement of those expenses. If taxes are due and owing, all of the owners will be liable for the monies, irrespective of any emotional or familial histories, including scenarios where one sibling cared for the parents for many years, while the other sibling declined to help.
Partition can be described as the best possible, albeit imperfect, solution to a messy situation.
How can some of these issues be avoided?
When parents transfer real property to their children, details of the costs associated with maintaining the property should be clear to all concerned; how will real estate taxes, maintenance of the real property and other expenses related to the real property be handled? Defining these costs and each party’s responsibilities will limit the issues the Court must decide.
Depending on the timing, get an appraisal of the property from a certified real estate appraiser. Disagreements over the value of real property is a particularly sore spot Make sure that proper estate planning is done, and that proper documents are in place.
Parents who are aware their children do not work well together should have their Wills make their wishes about the disposition of real property is clear. Better yet, a trust can be prepared which will allow the parents to remain in their home during their lifetimes and then specify the disposition of the property.