Splitting an inherited property - fair methods?

[tulak]

It’s amazing how people automatically assume there is going to be some type of disagreement or conflict.

OP hasn’t commented, and I hope they will follow-up, but a lot of the time people can be reasonable and come to an agreement without having to pay for 3rd parties to get involved.

 

[MarieIG]

In my opinion, the executor should hire the appraiser, and gave the other siblings a copy of the report. Any of the siblings can then hire their own, if they don't like the numbers. (This happened with a friend/ co-worker of mine - her brother was griping about the appraised value of the family home, his lawyer hired an appraiser for him, and surprise, surprise, the numbers were very close and after much bickering, they split the difference.)

Now, if one of the reports come out high, the other sibs may jump on that however, if OP thinks it is too much - the house can go on the market.

OP should have a paper trail of putting everyone on notice - and providing them options, while explaining that if an agreed up price can not be reached, the house will go on the market.

 

[OldShooter]

It’s amazing how people automatically assume there is going to be some type of disagreement or conflict. ...

You buy fire insurance, right? Does that mean you're automatically assuming that your house is going to burn down? A well thought out consensus is probably the best way to avoid conflict.

 

[all4j]

For a property willed to one sibling with a notation to buy out other siblings, what is the most accurate and fairest way to establish market value?

Most accurate & fair depends upon whose perspective! My experience is that this rarely is a pure financial matter.

Perhaps I'm taking the wording to literally, but I'm not sure what a "notation" is. Are terms of the will such that one sibling must either "dis-claim" or pay some undefined price? If not, isn't executor job to get title changed to that sibling & then step aside? Much we aren't told that might affect it. Is it single family home, rental, vacation, woodland, etc. Debt? Cost to maintain? etc

I'm a proponent of having an independent appraiser. Then split whatever closing costs are being avoided between the heirs. Maybe a small break for providing liquidity. (ie if major repair needed & it would take expense & time to get it sold...)

Let this be a lesson!

 

[Slim11]

IF your Mom dies and lives in IL and is the only owner, then the cabin will pass tax free to the heirs, assuming your Mom has less than ~4 Million dollars to pass on.

IL has a 4 million dollar estate tax, now since the property is in another State, and MI has no estate tax, there could be an opportunity to wiggle out of some IL state tax if needed.

Note: IF your Mom lives in MI, then zero estate taxes.

The Fed limit is 12 Million.

https://smartasset.com/estate-planning/illinois-estate-tax

https://smartasset.com/estate-planning/michigan-estate-tax

But you will still owe capitol gains of you hold it and it sells for more then it was valued at the time of death. So, you need an appraisal.
This is for the step up value of the home. See my post above. Or read here
https://smartasset.com/taxes/capital-gains-on-inherited-property

 

[tulak]

You buy fire insurance, right? Does that mean you're automatically assuming that your house is going to burn down? A well thought out consensus is probably the best way to avoid conflict.

I’m all for protecting myself against catastrophes, but I’m not seeing it here.

I reread OP’s original question and I was thinking the person is already deceased, but maybe that’s not the case. It’s really not clear based on OP’s post and they haven’t followed up since then.

If OP is asking how to write language into the will to determine fair market value, then your approach makes sense. Otherwise, I’d see if they can get consensus on a value before involving a third party.

 

[Slim11]

You still need an appraisal. Even if it isnt for splitting the money. Its for the capital gains tax. Without it , you may pay a lot inTaxes needlessly. The tax man may not ask you for it, but if they do.........this may not have to be done if you are on the deed. I think at that point you do not get the step up value.

 

[LateToFIRE]

"...property willed to one sibling with a notation to buy out other siblings..."

Reread the original post, which doesn't provide much detail, but implies that the property has already passed into ownership by one sibling (or is about to) thru probate or some other mechanism (i.e. trust, co-ownership, etc.), and that it was made clear (maybe thru a side letter) that the owning sibling is expected to compensate the other siblings for their "fair share" of the value. The question at hand being best way to establish what "fair share" means. Without more specifics, hard to offer up meaningful commentary, but in my experience, best if one party (the owner) take the initiative to offer up a solution. If it were me (and I have faced similar situations), I'd prioritize as follows:

(1) Get a couple of indications from local realtors if the property is fairly standard (i.e. condo, spec built home, etc.), see if that flys.

(2) Get a professional appraisal if the property is too unique to simply trust a realtor's estimation.

(3) Hire a professional mediator if the process becomes too contentious to reach agreement.

P.S. We don't know whether or not the OP is the owning sibling, a non-owning sibling, or a bystander such as a spouse, friend, etc., but the above advice works either way.

 

[euro]

Do these siblings all get along and have no grudges/complaints with one another, no Dad-Liked-Me-More stuff?
Will the non-willed sibs be happy to get bought out and get some $$ with the other one keeping the property?
Can the sibs each do a little research, and come together over coffee to discuss?

If yes to all that, great, you do that, then you all pick out a realtor or 2 after doing google/zillow research, and agree to go with consensus.

If not, sell the place and split the proceeds, everyone walks away.

I agree - sell it and split the proceeds. Everything else will always be subject to arguments unless you can all agree on a specific method (ex average of three real estate agents, or average of 3 appraisals,, etc.). In rare cases the heirs might agree on a value all by themselves, although in MY experience that almost never happens. Maybe if there are only two heirs, but the more people are involved, the less the chances for an agreement.

 

[Aerides]

It’s amazing how people automatically assume there is going to be some type of disagreement or conflict.

OP hasn’t commented, and I hope they will follow-up, but a lot of the time people can be reasonable and come to an agreement without having to pay for 3rd parties to get involved.

Oh for sure. If this was me and my sister, we'd easily figure out what to get on the market, then if one of us wanted it, take a reasonable chunk off representing the costs of selling, and the buy out would be half of that. It would be a chat over coffee, done. Or we'd make each other whole in other trade offs of other assets and things.

Or if we sold it, we'd agree to list it on the high side, especially in this market, and split down the middle. And I know my parents would never put us in that position anyway, they have always been very even handed, even when I was the jerk-kid for a while.

That's why the family dynamics here are so important. Any definition of "fair" is meaningless if the other sibs don't think it is.

 

[euro]

It’s amazing how people automatically assume there is going to be some type of disagreement or conflict.

OP hasn’t commented, and I hope they will follow-up, but a lot of the time people can be reasonable and come to an agreement without having to pay for 3rd parties to get involved.

Maybe that happens every now and then, but in MY experience, it is FAR more likely that the heirs will NOT be able to agree, or, at the very least, that SOME of the heirs will end up feeling cheated and resentful. That's just basic human nature.

 

[Slim11]

Maybe that happens every now and then, but in MY experience, it is FAR more likely that the heirs will NOT be able to agree, or, at the very least, that SOME of the heirs will end up feeling cheated and resentful. That's just basic human nature.

This I will agreee with fist hand. As of last year 3/4 of our family will not talk to our sibling( atually our sibling and family will not talk to us) because they wanted a house for free. They then took a tantrum when we offered them the home for 200,000$ under what it was worth. Money will do strange things to people.

 

[RetMD21]

Now, if one of the reports come out high, the other sibs may jump on that however, if OP thinks it is too much - the house can go on the market.

OP asked about the most accurate way to establish market value and a sale should be the gold standard.

 

[MarieIG]

OP asked about the most accurate way to establish market value and a sale should be the gold standard.

Fair market value to an unrelated third party . . .

 

[OddGuy]

Thanks, all.

Property has not passed to us yet. It will at some point in the future, assuming we don't predecease the property owner.

I prefer to be bought out, my sibling prefers to take the property. We are both fine with that.

And we are (or will be) co-executors.

Just tapping the brain trust here to confirm what the fairest method will be (whenever the time comes) of determining market value.

Appreciate all the responses.

 

[Stormy Kromer]

I'm glad you and your sibling are on the same track. I like the independent appraisal method mentioned above. You should be able to find one that you can agree on and split the cost. I think allowing for a discount for the sales costs is reasonable since there won't be realtor commissions and a lot of the other closing costs.

The main thing is to get along. I've seen too many families destroyed fighting over things big and small. Usually small.

 

[latexman]

Property has not passed to us yet. It will at some point in the future, assuming we don't predecease the property owner.

I prefer to be bought out, my sibling prefers to take the property. We are both fine with that.

And we are (or will be) co-executors.

As long as your sibling can AFFORD to buy you out, and wants to, it should work out. But, if not, the property will have to be sold, and split the $, or you'll have to take less, walk away, or sue.

My experience from selling the family farm with 3 siblings, two of which live on the farm (1 has already moved). Two and half years under contract and still no closing. Zoning changes, the Town citizens want a growth moratorium, it's election time, and the developer has "baggage". It's a mess! Luckily, we still get along as a family during this circus.

 

[Koolau]

FIL and his sister went to war (well, he went to war) because she took their dad's window air conditioner out of the garage after his death. FIL claimed their dad had "left" it to him (verbally.) The two kids never spoke again. No idea if the AC even w*rked.

Really sad.

 

[MarieIG]

FIL and his sister went to war (well, he went to war) because she took their dad's window air conditioner out of the garage after his death. FIL claimed their dad had "left" it to him (verbally.) The two kids never spoke again. No idea if the AC even w*rked.

Really sad.

Sometimes (the inheritance) proceeds peacefully among family members - other times - no doubt - it is a battle. I have seen both.

 

[Koolau]

Sometimes (the inheritance) proceeds peacefully among family members - other times - no doubt - it is a battle. I have seen both.

Not much to "fight" over when my mom passed. Only big sis and I to worry about it. We drew straws for who picked first. Then until it was gone, we chose items. She wanted the silver ware (which likely was mom's most valuable possession.) I gladly acquiesced and took mom's spinet piano which I've mentioned before. My favorite object of mom's but not the best choice when it comes to moving it around.:cool smiley:

No, there was virtually no money left. Just what was in her checking account and I needed most of that to finish off her affairs (lawyer who filed the "no need for probate statement" or whatever) and a couple of last minute drug/medical bills. Pretty much came out even.

Mom had "enough."

 

[latexman]

Luckily, we still get along as a family during this circus.

The potential $1.8M total payday sure helps too.

 

[OldShooter]

... We drew straws for who picked first. Then until it was gone, we chose items. ...

As I have mentioned before, DW was an SVP in a megabank investments & trusts division. This was her favorite recommendation to executors and families. As long as there is not just a single highly valuable item (which can be handled another way) this round-robin picking completely finesses any concern about who is getting more or less financial value in what they pick.

To the OP, if the property owner has not yet passed I suggest that you encourage them to specify the valuation method in an updated will or a codicil. This will bullet-proof you and your brother from some kind of future dispute. That's what I did with DM's will and everything went very smoothly.

 

[Koolau]

As I have mentioned before, DW was an SVP in a megabank investments & trusts division. This was her favorite recommendation to executors and families. As long as there is not just a single highly valuable item (which can be handled another way) this round-robin picking completely finesses any concern about who is getting more or less financial value in what they pick.

To the OP, if the property owner has not yet passed I suggest that you encourage them to specify the valuation method in an updated will or a codicil. This will bullet-proof you and your brother from some kind of future dispute. That's what I did with DM's will and everything went very smoothly.

Heh, heh, mom never thought she had anything of value to donate to this or that child. In her eyes, the china was most valuable and we couldn't give that away. Mom treasured it so that was good enough for us.

 

[Stormy Kromer]

Real Estate Appraisals can also have some variables.

When my father passed he owned some farmland. We were advised to have it appraised to establish a basis for the future. It was very interesting. The appraisal came back with 3 different values.

1. Income approach. How much cash flow does the land produce and what its rate of return. Turn that into an EBIT formula and you've got one value.

2. Comparable sales. Take a look at similar farms that have sold this past year or so.

3. The WAG method. If you were to hold an auction and there are two farmers nearby licking their chops to add to their holdings and have deep pockets. How much would they bid ?

For the past few years method #3 has been by far the highest and most realistic for farmland. I'd be willing to bet it would be for prime residential property too such as lake shore properties.

The OP sounds like its residential property. This should be much easier.

I would NOT use an online site such as Zillow or anyone like that. I would not use a realtor either. I would use a licensed appraiser just like the one who your mortgage company makes you hire when you buy a house and apply for a mortgage.

A neighbor recently passed. He owned 200 acres of land that he was renting to one son-in-law (at a steep discount). The son-in-law then wanted to buy the farm (at a steep discount) from the estate, 7 siblings The other siblings couldn't decide what to do so they hired a qualified farm auction company to hold a sale. They decided if any of the 7 wanted to buy it, they would have to at fair market price. It sold for about 30% more than they thought it would. The son-in-law never even placed a bid, he got blown out of the water. 6 out of 7 siblings are very happy, that is a pretty good percentage. I'm guessing sibling #7 will be happier when she gets check for her share. By the way, the son-in-law was not instrumental in working on the farm to help build it up, he didn't have any sweat equity like some family farmers have earned, (that's another story for another post.) If family members want a "Family Discount" I'd tell them "that is what your share of the inheritance is for".

To the OP, I'm pulling for you and hope it works out and you and your sibling are life long friends.

 

[EastWest Gal]

Our orchard appraisal was done in 2009 after my dad passed.An appraisal for estate valuation can easily come up with a different number than an appraisal for sale. The appraisal came in a ring bound book with color pictures and a map.