How to (peacefully) sell vacation property after a death in the family
Four years ago, Paige Hansen’s grandmother died unexpectedly, leaving her three grown children (Hansen’s mother, aunt and uncle, all in southwest suburban Chicago) two ski condos in Colorado.
“It was where the family had vacationed together,” Hansen said. The emotional attachment was great, but so was the monetary value. “Grandma bought before Aspen was Aspen,” Hansen said. When purchased in the ’80s, the two-bedroom, two-bath condos at the base of the mountain were $200,000 each. Now each was worth $1.2 million to $1.5 million.
“People don’t realize how emotional real estate is until they have to make the decision,” said Hansen, founder and owner of Optiv Properties in Palos Park, Ill.
After a parent passes away, middle-aged siblings often have to deal with a mountain of stuff left behind. When a parent’s earthly property includes real estate, specifically vacation properties such as a beloved old lake house, it can get ugly fast. And the significant appreciation of waterfront or lake-view property over the past generation has further raised the stakes, making conflict more likely.
Mark E. Kellogg has seen it all — the good, the bad and the ugly. An attorney with Fraser Trebilcock law firm in Lansing, Mich., Kellogg works with families throughout the Midwest on legacy properties, including lake houses that have been in families since the early 1900s.
Everything depends on whether the family has a plan, Kellogg said. Typically, families that set up a legal structure ahead of time, usually a trust or LLC, want to keep the lake house in the family. Whether the desire is to keep or sell, the document covers to whom it can be transferred, or how its value will be determined and how it can be sold.
Without planning, the situation can be “challenging,” Kellogg said diplomatically.
“The tough part in this practice is to watch families fighting,” he said. In one case, the parents chose not to plan, saying their four grown children could handle it when the time came. Or perhaps, he said, the parents didn’t engage because they anticipated problems.
They were right. One of the kids wanted his share of the money out of the property immediately. The others could not afford to buy him out.
In some cases, other inherited assets can be tapped to pay a sibling for his share of a property, but that won’t work if the lake cottage is worth more than the other assets, Kellogg said. These three siblings were willing to borrow, but the remaining one wasn’t willing to be paid over time. They wound up having to sell the vacation home.
When the situation is contentious, even agreeing on value is difficult. Likely more than one appraisal will be needed, Kellogg said.
Pam Leavenworth, a broker associate with Coldwell Banker of Naperville, said property situations that spark siblings to battle show similarities to those of divorcing owners. One difference is that afterward, husbands and wives can go their separate ways. “But siblings remain siblings forever,” Leavenworth said.
In Hansen’s case, despite memories of the Aspen condo and being an avid skier, she stayed out of her elders’ decision, not wanting her feelings to affect that decision. “It’s not my money. It’s their choice,” she said.
“These were three different minds. If two agreed, the third wouldn’t. They all took turns disagreeing at different points,” she said. “It’s such a big asset; there’s a lot of money parked there. Do you want to continue making memories with your family? Do you want a vacation home somewhere else? Do you want to invest?”
One sticking point was the valuation, but appraisals can be just the beginning. Do you deduct a real estate agent’s fee from the property’s value? If you’re not using an agent, a 5 percent fee on a million-dollar condo ramps up the value significantly. Do you include the worth of the furniture and artwork in the condo? It makes a difference, whether you’re the sibling paying or the sibling getting paid.
“What took so long was everyone wanted to go out there again,” Hansen said. “Even if they weren’t going to keep it — my aunt knew she wasn’t — she wanted to visit one last time, to emotionally let go.”
Eventually, an uncle bought one unit and Hansen’s mother bought the other. They subtracted the theoretical real estate agent’s fee from the valuation and decided art and furniture would stay with the unit. “My aunt was generous in that,” Hansen said. Both decisions decreased the value, making it easier for the other siblings to buy.
Families should also consult an accountant or financial adviser to understand inheritance taxes. “Research inheritance tax before you start, or you could end up owing money,” Hansen said because real estate regulation and taxes differ from state to state.
“It will take time, but you can’t take forever. There are carrying costs. If it’s a summer cabin, are you going to keep it all winter and hope it doesn’t flood? If you’re going to sell, in which year does it make sense to claim the income?”
As a managing broker in Illinois, Hansen more often deals with selling the main home after a parent’s death. She said being designated an executor is an honor but also a job that can bring you “under assault by siblings.”
Family members want time to go through the house to determine if they want to keep anything and see if another relative wants to buy the home. “But while you’re taking your sweet time, there’s a mortgage, there are taxes, there are utilities. Just because someone dies doesn’t mean the bills stop.
“It’s quite the process. I’ve seen ugly things. When someone passes away, personal agendas come out. People start scrapping over stupid stuff. It’s common to hear of mom passing away and relatives going in and taking things, or someone trying to sell the house out from under the others, or a relative who won’t sell, or that one who just won’t agree. In the meantime, it’s costing everyone money. My job (as a real estate agent) is to remain neutral and remain calm.”
It took a year to settle her family’s two Aspen condos, and any hard feelings are behind them. The squabble over a painting is settled, and the members are happy they kept the properties.
As Hansen says now of those snow-country properties: “If we let them go, there wasn’t a snowball’s chance we’d ever be able to afford that again.”
Cheryl Stritzel McCarthy is a freelance writer. ___
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