When someone who owns real estate leaves it to two or more people, many problems can result. Even siblings or close relatives may disagree about what to do with the inheritance. Some simply may not want the hassle of owning real estate – especially with an unexpected co-owner. What should you do?
First Option: A Buyout
If you and a relative inherit a house, you probably each own half unless the giver stated otherwise in the will. The giver could specify ownership as a joint tenancy with right of survivorship or as tenants in common. When one co-owner does not want to keep the house, the other co-owner can choose to buy him or her out. This involves obtaining financing on only half the house’s value, getting an appraisal, transferring title, and paying any closing costs.
Second Option: Sale or Rental
If neither co-owner really wants to keep the house, you should consider sale or rental. Rental also could be an option if one co-owner wants to use it in the future (such as for a child’s housing when he or she gets older). Take into consideration the realtor costs if you are selling, and the property management costs if you are renting. Also consider the costs of future maintenance problems and regular upkeep. In either case, make a written agreement with the other co-owner specifying who receives what money and which tasks each person must perform.
Third Option: Private Dealings
If only one of you wants to sell but cannot afford financing, consider a private loan arrangement. Instead of an official bank loan, the co-owner who is keeping the house could make a loan to the other co-owner. If taking this route, write up a promissory note and consider including interest payments as well as a principal payment schedule.
Final Option: Partition
If you and the other co-owner truly cannot agree what to do with the house, you could file a request that the court partition the property. Partitioning means that the court orders sale of the house with proceeds divided among the co-owners. This process can be expensive and time-consuming – often far more than if co-owners simply agree to sell the house in the first place.
As you can see, many problems might arise if you and a relative inherit a piece of real estate. For more solutions, talk to an experienced estate planning attorney.
When a non-U.S. citizen co-owns real estate with a U.S. citizen – especially if the co-owners are spouses – many problems may result. For example, the non-citizen could end up owing a lot of money in estate taxes. Also, distribution of the non-citizen’s estate could be very complicated.
Estate Taxes and Real Estate with a Non-Citizen Co-Owner
Besides the difficulty of obtaining a mortgage, non-U.S. citizens usually have few problems owning United States real estate during their lifetimes. One big problem, though, can occur when the real estate is co-owned with a citizen and the citizen dies. If the non-citizen and citizen were married, the non-citizen likely will inherit the entire property. This could result in very expensive gift tax and/or estate tax liability due to the limited tax exclusions available for non-U.S. citizens.
Because of the all-too-common problems that arise when a non-citizen spouse inherits real estate, U.S. citizen spouses should consider forming QDOTs in their spouses’ favors. A qualified domestic trust maintains some of the tax benefits that a non-citizen spouse would enjoy if he or she was a citizen. The U.S. citizen spouse could even place his or her interest in the real estate into the QDOT trust.
Estate Disposition and Real Estate with a Non-Citizen Co-Owner
When a non-citizen co-owns real estate with citizens, the death of the non-citizen could cause a real estate headache for the other co-owners. In theory, the non-citizen would have made a will passing on his or her interest in the property to a specific person, making the transfer simple. But in practice, matters can be far from simple. The non-citizen may have citizenship in a country that requires expensive estate taxes even on U.S. real estate, or may have citizenship in a “forced heirship” country like France. Several different foreign heirs could now have co-ownership of the property along with U.S. co-owners. The new set of owners may disagree about what to do with the property.
This host of potential problems can be avoided if the non-citizen takes the time to do estate planning in the United States. Specifically, he or she should talk to an estate planning lawyer located in the state where the real estate stands and who is familiar with international issues.
Planning your estate? Look to Janet Brewer, Esq. for thorough and thoughtful estate planning advice. Janet’s more than 20 years of legal experience will give you confidence and peace of mind. To schedule a “Get Acquainted” meeting, visit Janet's website or call her office at (650) 469-8206.
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Posted by: Fairfox EO | 08/15/2023 at 10:06 AM