The Wall St.Journal 28Feb2020

THE WALL STREET JOURNAL. Friday, February 28, 2020 |M11

In his life-
time, Kerney
Overman Jr.
built a thriv-
ing construc-
tion com-
pany, a
close-knit family and a
charming beach cottage one
block off the Atlantic Ocean
in North Carolina. But at
around age 70, his mind
started to slip. Since his wife
had already died, he turned
to his eldest child, the one
he called “Old Faithful,” to
help plan for the future.
“If it had to be done, I
would do it,” says his
daughter, Karen Garrison of
Burlington, N.C., who, with
an attorney, helped her dad
set up a trust to hold the
beach cottage and other in-
vestment properties.
When Mr. Overman died
in 2015, his estate plan en-
abled all four children to
share the cottage and en-
sured they had the money
to maintain it. The invest-
ment properties were sold,
with the proceeds going
into the trust. Rental in-
come—about nine weeks a
year—helps cover some of
the expenses, and each
child pays a nominal fee
when staying at the cot-
tage. So far, the plan has
worked: All four siblings
are still on speaking terms.
As sole trustee, “I de-
cided from the get-go that I
wouldn’t do this by my-
self—everyone was in on
the decisions,” says Ms.
Garrison, 64, who estimates
the cottage’s value at
$485,000.
Creating a comprehensive
estate plan is about having
conversations before par-
ents become ill or die, says
Erin Cockman, a financial
planner with Pinnacle
Wealth Partners in Burling-
ton, N.C., who worked with
Ms. Garrison and her father.
“People are so private about
their money, but families
need to be better about hav-
ing tough conversations.”
Family conversations are
so important to the process
of creating an estate plan,
says financial planner Ste-
ven Tenney, that he hosts

•A well-structured estate plan
includes a will, a trust detail-
ing the handling of parents’
holdings both while living and
after death, and naming of
trustee(s) and estate execu-
tor(s). It should include in-
structions for what happens
when a parent becomes inca-
pacitated. The plan also ac-
counts for assets that auto-
matically transfer to heirs
who are named beneficiaries,
such as life insurance. A dura-
ble power of attorney, living
will with medical directives
and a letter of intent—instruc-
tions that outline the parent’s
wishes—are also commonly
part of an estate plan.

•Conduct family forums in
which parents and siblings
are upfront about their
wishes. Hold periodic meet-
ings as circumstances
change. “We might have put
this plan in place 20 years
ago, and a lot can change in
that time,” says Steven Ten-
ney, a financial planner in
Portland, Maine.

•If a sibling is getting a
greater share of a family
home, parents can bequeath
assets to the other heirs to
balance the inheritance. That
can be done with a life-in-
surance policy, Mr. Tenney
says. Parents can also make

tax-free annual gifts to dis-

perse assets while still living.

•Putting the home into a

trust or limited liability com-

pany can make it easier to

financially and legally man-

age the property and keep it

out of probate court. But

naming only one child as

trustee could create friction

with his or her siblings.

•For siblings who have inher-

ited a home that sits on a

large amount of land, donat-

ing some of the acreage to a

conservation easement could

yield tax advantages that

would help keep the home in

the family.

•Often, a sibling who lives

close to the family home will

buy out the portion held by

siblings who live farther

away, says Ross W. Stoddard

III, a Dallas-area mediator.

Siblings could also agree to

jointly own a house, and rent

it out, either to one of the

siblings, or to a third party.

•Tocoverthecostsofprop-

erty maintenance, one sibling

can pay the expenses and

accept a promissory note

from the others that prom-

ises to pay a specified

amount over time, Mr. Stod-

dard adds.

PLANNING AHEAD FOR A FUTURE

WITHOUT MOM AND DAD

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family forums for his cli-

ents and their children

when drafting one. “The

primary objective is fam-

ily harmony—it’s not

taxes. It’s not always

easy to attain and

maintain,” says Mr.

Tenney, chief executive

of Great Diamond Part-

ners in Portland, Maine.

Mr. Tenney frequently

works with clients whose

cabins have been in the

family for generations.

“There’s a very strong emo-

tional attachment to those

homes and to those towns,”

he says. But problems arise

when some siblings have

moved far from home or

when one sibling lacks the

financial means to maintain

his share of the property.

He worked with a family

in which three siblings were

beneficiaries of a trust that

held a family vacation home

on Penobscot Bay. Before

the parents died, Mr. Ten-

ney moderated a family fo-

rum that detailed the par-

ents’ finances and let the

siblings express their opin-

ions about the cabin and

property. After the parents

died, one sibling bought out

the other two—they didn’t

live nearby and were in dif-

ferent economic circum-

stances.

In a separate case, how-

ever, there was friction

among three siblings over a

perceived inequality in the

division of assets. In this

instance, the client’s daugh-

ter, along with her husband

and son, had invested a lot

of “sweat equity” to main-

tain a vacation home on

Maine’s midcoast. The fa-

ther believes his daughter

and her husband earned the

right to be the next owners.

Making her the sole benefi-

ciary of the trust that

owned the house resulted

in animosity with the other

children that lasted years.

Animosity also can arise

when a parent has a poorly

structured estate plan, says

Ross W. Stoddard III, a Dal-

las-area attorney-mediator.

If a home and other real

property, like land, aren’t

transferred to a trust be-

fore the death of a final

parent, it likely will end up

in the probate court sys-

tem. The estate’s executor

or administrator must

maintain the property and

pay its expenses until the

property is either sold or

distributed to beneficiaries.

When there is conflict

among siblings, probate

procedures can be lengthy

and expensive.

As a mediator, Mr. Stod-

dard frequently helps sib-

lings resolve their probate

disputes. He has seen many

siblings contest an estate

plan by arguing that when

their parents signed the

will or trust, they lacked

mental capacity or were un-

der undue influence from

another person. (Some par-

ents add an in terrorem

clause to a will or trust

which says that any benefi-

ciary who contests it for-

feits their share, he adds.)

When a disputed estate

plan goes into mediation,

Mr. Stoddard

first meets

with the sib-

lings and their

lawyersasa

group. Then

each sibling

and his or her

lawyer is

placed in a

room, and Mr.

Stoddard shut-

tles proposals back and

forth between them. Usually

they can tackle the issues in

a day. But if there is an im-

passe, the case could go to

court, says Mr. Stoddard.

Legal costs in a dispute

with multiple appeals can

run upward of $100,000, he

says. “The more money in-

volved, the greater ability

to sustain the fight.”

There’s also a risk that a

court will order a “partition

by sale” of the property, re-

sulting in it being sold and

the proceeds distributed

among the siblings. Laws

vary widely, Mr. Stoddard

notes, but in some states,

the property is sold at

what’s called a “sheriff’s

sale,” a public auction,

where it could sell at far

below fair market value to

an unrelated third party.

To help avoid such a re-

sult, 15 states have enacted

the Uniform Partition of

Heirs Property

Act. When ap-

plicable, the

court gets an

appraisal of the

home. Then the

co-owner(s)

who didn’t file

the partition

petition have

the right to buy

out the co-

owner who did file it. If that

doesn’t occur, the court ap-

points a real-estate agent to

list the property, which can

result in a sale price that is

closer to fair market value.

Regardless of how a

home is passed on, the pro-

cess can take a toll on the

whole family. “It’s sad be-

cause it could lead to the

destruction of relationships

that otherwise would have

continued,” Mr. Stoddard

says. “Now, there’s no more

Christmas with the cousins

or the nephews.”

COUNTING HOUSE|BETH DECARBO

Keeping It All

In the Family

When children inherit a home, discord can

follow without proper planning

INGO FAST (2)

24%

Portion of the

nation’s currently

owner-occupied

homes that is likely

to hit the market in

the next 20 years.

Source: Zillow