There are some specific challenges that wealthy parents must navigate when transferring real estate to their heirs. The Silent Generation and Baby Boomers own almost $25 trillion in real estate. So, it’s really important that we get it right when we decide how to manage these valuable assets. Experts urge people to focus here as vacation homes pose the biggest headaches during this conversion. According to Elisa Rizzo, head of real estate wealth advisory at J.P. Morgan Private Bank, these properties are often central family hubs that create lifelong cherished memories. Making these homes go to the next generation can ignite conflicts among heirs.
Advisors urge these four strategies to make sure that real estate can be passed down without a hitch. For instance, Laura Mandel, who has worked closely with families managing ranch properties, states, “Typically families want to retain these properties along the bloodline.” Without an agreement in place ahead of time, disagreements may lead in part to maintenance and access responsibility disputes over the resulting infrastructure.
Doyle, another financial expert, cautions against gifting appreciated real estate before death. When parents choose to transfer property during their lifetime, their heirs still inherit the original cost basis. This deliberate decision places the state on a collision course with future revenue impacts. Instead, he proposes establishing a trust for the kids but taking the interests in an LLC. This structure makes ownership much easier but ensures protection.
When the kids are direct owners of a second home, problems can arise rapidly. Dan Griffith underscores the potential for resentment among siblings, stating, “What ends up inevitably happening there is that one person pays the bills, and then enormous resentment grows.” He elaborates on this by explaining that financial discrepancies often lead to conflict: “Or they say, ‘Hey, I’m the one paying all the bills. How come I don’t get to use this more often than any of the rest of you?’”
The LLC structure solves almost all of these problems. It protects heirs from creditors and from liabilities that siblings may accumulate. Griffith warns that without this type of framework, families risk becoming mired in constant tension that can strain even the strongest relationships. He asks a poignant question: “In a lot of cases, you may have some kids that can afford to pay the maintenance expenses, and others can’t, so how do you treat them equally?”
An LLC can provide protection, and, if well-structured, can provide parents a means to set conditions on how the child can use the property. You can give them holiday designations to take home and use on each divvy. Or you can lay out when and how they can re-decorate or sublet the property. By taking the initiative to set these rules in place, parents will avoid some big arguments down the road and help continue family traditions for years to come.
Doyle strengthens this idea by pushing readers to take initiative. He thinks that the ideal is to leave real estate outright to heirs via a will or living trust after your death, if possible. In practice, a properly drawn trust provides the best defense against a spouse’s court challenge. This is a huge deal. It adds an effective new layer of security for families. He advises using liquid assets or life insurance policies to fund these trusts robustly enough.
The emotional attachment to vacation homes is not something to gloss over. Rizzo explains, “That vacation home, often for our families that are very mobile, becomes the centering place.” These properties carry tremendous historical and emotional value but can quickly turn into an anchor if not thoughtfully stewarded.
Mandel tells the fascinating story of one such ranch-owning family. Then came an unexpected death, leaving just one sibling with any knowledge about the property. This unfortunate scenario serves as a reminder that education and shared information between heirs — particularly, about family assets — is crucial. She focuses on the importance of educating families and engaging them all on property management, so there’s no uprising later down the line.