Say that back in the 70’s, there is a Grandmother who gifted her lake cottage to her 2 daughters, June & Sue. June & Sue enjoyed the house together while their kids were growing up, but as the kids got older, June began using it less. Fast forward 15 years and all the grandkids are grown and married. They are using the cottage more and more, primarily Sue’s kids, and June doesn’t want to pay for it anymore, nor does she want the liability associated with owning a lake house with a bunch of 20 year olds drinking and partying.
At the same time, Sue decided that she didn’t really want to own it, either, since she wasn’t really using it, either. So the two sisters approached Sue’s 3 kids to see if they wanted to buy it. They agreed to buy it together, and split all expenses 3 ways. The estimated value of the cottage and property was $60,000. So, Sue “gifted” her half to her children, and they paid Aunt June $10,000 each (for a total of $30,000).
Fast forward 30 years. Now Sue’s 3 children, April, Bob, and Cathy, are all in their 50s, with grown kids. History is repeating itself, except April and Bob are still regularly using it, but both of their kids are also bringing their friends down. After Cathy got wind of the parties, she decided she didn’t want the liability associated with it, and asked to sell out her interest. Cathy hasn’t used it in 3 years.
So, here’s the question: Assuming that the value of the house is still $60,000, what should Cathy ask for her interest?
$20,000 because she owns a 1/3 interest in the home.
$10,000 because she only paid 1/6 of the value of the house (because her parents gifted the other half to all the kids)?
$10,000 now and $10,000 if the house is ever sold.
Start with the basis that Cathy should get 1/3 of the value of the cottage. If she wants to make it easier on the kids she should make any or all of that a gift. What she paid in the past isn’t really relevant, it’s the percentage of ownership based on current value that matters. As the generations continue this will get harder to work out if anyone retains an interest towards a future sale, for peace of mind Cathy has to sell her interest entirely, and to maintain family peace she should get fair market value for it.
I don’t think it’s quite that simple. Generally a person with a minority interest in a piece of property can’t force those holding a majority interest to sell. So she doesn’t have any right or ability to force the other owners to pony up to buy her out.
That said, this is a toughie. I don’t think there is necessarily a right answer. It’s best for all parties to work something out. My best recommendation would be for April, Bob, and their kids to pony up $10,000 to buy Cathy out. She gets out what she put in and it passes on to the next generation.
I’d start with 1 but honestly I’d be shocked if a lake house hasn’t appreciated in 30 years so her piece is probably work more then that. I’d get an appraisal first then ask for a third of the value. The people who use it can split that dollar amount any way they want.
I don’t see much at all of different perspectives. She’s entitled to a third but she might sell for less depending upon her closeness to the prospective buyers.
The only thing I would add to this is to talk to a tax specialist because gifting part or all of the property might have some tax implications for both the donor and receivers. And offering to sell at a 50% or 66% discount off market value could in itself be construed as a gift.
Thanks, but this is the last of my worries. Besides, this would only happen if one of the parties involved tipped off the bloodsuckers by either claiming a write off or reporting it as unearned income. Both are highly unlikely.
I concur with Boyo Jim, make sure everything is up and up tax-wise. For reasonable people there’s nothing to be concerned about. But if a tax bill ever shows up you don’t want to end up with hard feelings or family suing family. And the same problems exist if someone gets a special deal in the transfer of the property, years down the road someone may remember the special terms and want them as well, and that property could be worth a fortune 30 years from now, if it isn’t already. And in that case you certainly don’t want part of the family saying Cathy’s daughter should only get $10,000 because that’s all she put into in the first place.