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Tenancy In Common: How Not To Own Property

Here is a typical estate scenario. Father and Mother own their $1,000,000 homestead jointly with right of survivorship.  They have three children- Sam, Stan, and Dora, all in their 50s.  Father dies and the Mother becomes the owner.  Mother dies a few years later intestate.

Without a Will, Sam, Stan, and Dora become tenants-in-common under the laws of intestate succession.   Even if Mother had a Will, she would likely leave 1/3 of her estate to each of her three children. Same result.

The relationship between the three children was never good; it is about to get much worse.

Sam wants to sell the home; Dora wants to fix it up and rent it out until the market improves, and Stan cannot make up his mind.  The home needs a new roof and only Dora is willing to pay her share.  Real estate taxes escalate as the property no longer qualifies for homestead exemption. The insurance company wants to cancel as it is unoccupied. The yard is a mess and the City sends a Notice of Violation!

Sam is to so fed-up, he visits a real estate lawyer and commences a partition action. This is an action where the property is put up by the Court for sale, expenses and fees are paid, and the proceeds are then split up proportionately to the owners.  Usually, everyone is unsatisfied (other than the buyer) as these sales typically result in a much discounted price.

Another risk is that one of the children gets upset, sells their 1/3rd interest to a third party at a significant discount, and the buyer is a co-owner from hell.  He threatens to commence a partition action unless the other children buy him out for a big profit.

This could also happen if one child has a creditor problem.  Since the child does not live in the residence, the child does not enjoy homestead creditor exemption.   The creditor can attach the child’s 1/3rd interest and threaten partition.

This need not happen. Assuming sufficient assets, Mother could devise the residence to one child and make the others whole by leaving them more of the remaining assets.

Another way is for Mother to execute a Deed, retaining a life estate, with remainder to a trust.  At her death, the residence becomes owned by the trust.  Some money is devised to the trust to maintain the property and to pay the taxes and insurance. The trustee decides how to handle the property and when and if to sell. Sometimes the trustee is one of the children or another trusted family member or advisor. The result is that the property is maintained and the three children have little reason to fight with each other.

As an alternative, a limited liability company could substitute for the trust with asset protection benefits.  Each child would be a member. The issue is who should be the manager?

If you are expecting to receive an inheritance that may include a tenant in common interest, speak to your parents and urge them to see their estate planning attorney.

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