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Real Estate Gifts Can Disrupt Family Harmony

Written by Posted On Monday, 07 December 2015 21:10

When unresolved family issues and ingrained family dynamics stand between you and your real estate goals, you won't get far by pretending family influence doesn't exist or by returning to old behavior patterns and squabbles.

When giving a gift of real estate, the giver expects a happy ending for receivers, but within families, problems can arise. From the start of a gifting project face relevant family issues and dynamics head on. Work to transform them in the context of current issues and constructive dynamics so you'll enable achievement of the desired real estate outcome[—]the happy ending.

The problem can distract you from the solution.

This column continues on from my earlier article, "Strategies for Facing Problems Head On" by sharing reader response to the no-forethought-gift scenario presented in this previous article.

The first article stressed that "to avoid a negative outcome, focus on where you want to end up, not on the potential disaster you see ahead...and you will be drawn toward a positive outcome — the direction you concentrate on."

The earlier article's "Case Study: Solution for Distraction" introduced newly-weds John and Alice Lee who received a gift of a building lot from her parents, only to have her two brothers later ask her for their share of this gift. There's an abbreviated version of the Case Study at the end of this column or full Case Study.

The stage was set, as it is in too many similar cases, for stress, fear, and ignorance about real estate ownership, property value, and estate planning to potentially ruin a marriage, a family, and a family business — and the peace of mind of many individuals. None of this was the intention of the gift-givers.

We asked readers, "How do you think John and Alice should resolve this problem?," and readers responded with great ideas and practical approaches:

1. Although husband John felt the brothers should be paid off to preserve family peace, none of the readers we heard from agreed with him. One Minnesota reader succinctly summed up the situation: "The land was a gift from her parents. She is not required to pay her siblings anything. The siblings need to talk to their parents."

2. The conflicting views on the gift and entitlement are typical and reveal how fragmented families can become when parents randomly transfer valuable real estate and financial gain to the next generation. One Colorado reader wrote: "I have multiple reactions to your story. First, I'm taking a viewpoint from the husband's position:

  • The 2 sons are selfish, reacting out of their sense of being cheated (jealously).
  • The wife had let her brothers run over her.
  • The issue is solely her parents problem, if any. They need to finally spank these two boys."

This reader recommended:

  • I believe the two boys have zero legal basis.
  • Alice could ignore the brother's request or tell them politely.
  • Let the brothers decide if they wish to approach their parents."

3. In situations like this, there is no one approach or solution since the relationships and individuals involved will uniquely determine who will prevail and who will compromise. Real estate gifts are further complicated by IRS concerns and wealth transfer through estate planning. The following comments by a Georgia reader added relevant twists:

  • If the parents gave Alice the lot, they obviously intended her to have it.  This is true even if the parents are still alive and become bullied by the brothers into suggesting that Alice do as the brothers have asked and share the value of the lot. Any pursuit of part of the lot's value by the brothers is damned impolite. It's even more so, if the request comes only after the lot has apparently become more valuable.
  • As an aside, the lot's apparent increased value raises the question of what IS the lot REALLY worth? In the case study, it sounds like the other lots have only been LISTED for $400,000 price tags, so the question becomes, ‘What have or will they sell for?' Knowing that might give Alice a bargaining chip to reduce the $80,000, if she decides to acquiesce to the brothers' request for a part of the lot's value.
  • AND, if the brothers want to hang their argument on "we're a family and we always share," then ask the brothers for copies of their tax returns and for the company's financials, the goal being to see what the brothers have taken from the business that she hasn't. ‘My part is very visible,' Alice could say, ‘so to be fair about family sharing, it's only fair that your family part also be very visible.' Nail that down with: ‘Call your accountant and advise him my accountant will be calling on him.'
  • If they object, she can say that ‘families share' and that because she wants to be fair about it and because the brothers think they know what the gift of the lot is worth, she needs to know what ‘gifts' the brothers have taken from the family in recent years (going back to when they built their houses).
  • If it gets contentious and she really wants to confuse the brothers, she can ask the brothers to put a price on the business to buy out her share, also asking a business broker to put a price on the business. Doubt they'd wanna do that.
  • By the time all of this is finished and if she's handled herself well, the brothers will have a lot more respect for her. They'll go back to running the business and be very wary of disturbing her again and the whole thing will probably go away. AND, if she makes them mad, it don't appear like she'll have lost anything."

4. Our commentators were all real estate professionals although their positions within the industry varied. Thank you for taking the time to share your creative problem solving skills and ideas. Readers who wrote that they had immediately put that column's ideas to work revealed how important it is for professionals to continually search out fresh thinking. One reader shared: "It is a great read-and-think article and the timing could not have been better for me. I was sitting at my computer mulling over an issue with a current sale and looking for possible solutions which would keep the matter from billowing out of control. Your article helped me to be more clear on my next steps, so THANK YOU for putting such a wonderful article out there to help us all."

Unresolved family issues and ingrained family dynamics made the simple wedding gift from the parents to their youngest child anything but simple. Good intentions will not over-ride tax issues, disputes between heirs, and bad feelings between family members. Frank discussion and professional expertise are the best strategies when gifting real estate and preserving family harmony.

FYI: Here's an abbreviated version of the "Case Study: Solution for Distraction": John and Alice Lee (names changed) received a terrific wedding present from her parents: an irregular-shaped, 1.5-acre building lot adjacent to their rural property and those of Alice's two older brothers. Nothing was said to the brothers, or by the brothers, about this gift, until more than a year later when acreage across the street was listed. Based on the listing prices, the brothers asked their sister Alice and her husband for a share of the value of the gifted land—$80,000—since "we're a family and we always share." How do you think John and Alice should resolve this problem?

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PJ Wade

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