Usually, houses that are inherited in estate plans get liquidated by the beneficiaries. These properties are sold and the money derived from the sale is divided among those who inherited the property.
However, there are some people who want their home to be kept and resided in by their beneficiaries after they have passed away. This is possible through estate planning.
Right of First Refusal to Buy
One way a person can give an illiquid house to their children is through naming one of them as its beneficiary. That way, there is no concern about liquidating the house and dividing the assets. However, when doing this, it’s important to make sure that the beneficiaries are treated equitably.
When giving an illiquid house to a beneficiary, there is no spending money attached. Hence, it’s important to make sure that the children, who are the common named beneficiaries, are given similar or close values of inheritances.
For example, if an illiquid house valued at $300,000 is given to one child and the other is given $300,000 in cash, the child who received cash would be at a disadvantage in the future if the property’s value rises. The inheritances of the two children would be very uneven.
A solution to this is giving the child who received cash a right of first refusal to buy the home. This allows them to purchase the house from the estate for fair market value. When they purchase the house, it no longer is estate property. This is a way to make a house available for the children to live in, if they so prefer.
Although it may seem easier to just name one of the kids as the beneficiary of the house, it can give rise to conflict, especially considering that money can cause emotional situations and hard feelings. When giving an illiquid property to children, it’s important to make sure that everyone is treated equally and receives a fair amount to avoid conflict and contests against the estate.