[WSBAPT] Clause in Trust that Prevents Forced Sale of Real Estate?

Mon Aug 2 07:35:03 PDT 2021

Great email, Phil!  One of my clients is having to deal with the fallout of that very situation.

Best,

Candace Wilkerson

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From: wsbapt-bounces at lists.wsbarppt.com <wsbapt-bounces at lists.wsbarppt.com> On Behalf Of Philip N. Jones
Sent: Saturday, July 31, 2021 5:27 PM
To: WSBA Probate & Trust Listserv <wsbapt at lists.wsbarppt.com>
Subject: Re: [WSBAPT] Clause in Trust that Prevents Forced Sale of Real Estate?

This is a very bad idea.
When clients tell me that they want to leave their vacation house to all of their children, this is what I say:
It is usually not a good idea to leave a vacation house to the children in a trust, or in an LLC, or as tenants in common, or otherwise, unless you build in a mechanism that allows one or more of the children to exit without suffering a significant economic loss.  Here’s why:  Some of the children don’t want it, some of them don’t live close enough to use it, some can’t afford to pay their share of the upkeep, and some don’t get along with the others.  And any cash fund you might leave with the house would have to be ginormous in order to pay the taxes, insurance, and upkeep over a period of many years.  Much better to leave it to the ones who really want it and are willing to pay to maintain it.  That is often accomplished by either leaving it outright to the ones who want it, and leaving cash or other assets to the ones who do not, or by allowing the ones who want it to use their share of the estate to buy out the ones who do not want it.  Put that language in the will or the trust, so that the personal representative or trustee will have the power to wheel and deal in order to get a good result where everyone is happy. Don’t assume that the children will work out an agreement to distribute the house to the correct children, because one child will invariably refuse to agree.  In short, leaving the house to all of them will often cause unnecessary family conflict.  The parents might be sentimentally attached to the house, but their children will thank you for not locking the children into a situation that will cause them unnecessary problems and family strife.
I once had a client who told me, “We have children (who we dearly love) who do not get along.  We have a vacation cabin (which we dearly love), and so we are going to force our children to get along by leaving the cabin to all of them.”
Egads.  Sigh.
Some of the mechanisms that you might build into your estate planning documents:
Allow any one child to require the others to buy him/her out at an appraised price.  If they decline to do a buy out, require that the house be placed on the open market.
Give each of the owners a right of first refusal in case one owner wants to sell to an outsider.
Allow any child to name a price, and then let the other children decide whether to be a buyer at that price or a seller at that price.  This is called a flippable offer.  It keeps everyone honest.  Remember when you were a kid, and you would cut a donut in half and then your sibling would select which half to take?  It’s the same principle.
Allow any one child to place the house on the open market, keeping mind that the other siblings might be the buyers.
Stipulate that any sale between or among the siblings be at full value, with no discount, or possibly a small 5% or 10% discount.  Be very specific about whether a discount will be employed; if you merely state “fair market value,” the buying child will insist that fair market value necessarily must reflect a minority discount.  Be sure to resolve that debate in your documents, in advance, very clearly.  Debate over.
Everyone should come out even, or close to even.  That’s how you maintain family harmony, not by locking the kids into a house they don’t want with siblings they don’t like.  The kids will think you are a genius.  Their parents will initially be unhappy with your suggestion, but you ought to be able to explain the pros and cons (summarized above), and they will most likely come around, one hopes.
Phil Jones

Philip N. Jones
Duffy Kekel LLP
900 S.W. Fifth Ave. Suite 2500
Portland, OR 97204
pjones at duffykekel.com<mailto:pjones at duffykekel.com>
(503) 226-1371 – office
(503) 853-1482 – cell
(503) 226-3574 - fax

From: wsbapt-bounces at lists.wsbarppt.com<mailto:wsbapt-bounces at lists.wsbarppt.com> <wsbapt-bounces at lists.wsbarppt.com<mailto:wsbapt-bounces at lists.wsbarppt.com>> On Behalf Of Inge Fordham
Sent: Thursday, July 29, 2021 12:58 PM
To: WSBA Probate & Trust Listserv <wsbapt at lists.wsbarppt.com<mailto:wsbapt at lists.wsbarppt.com>>
Subject: [WSBAPT] Clause in Trust that Prevents Forced Sale of Real Estate?

Colleagues,

I have a client who wants to transfer the family house into a revocable living trust, which will instruct that the house go to each of three children (to share equally) upon his demise.  The client is asking whether we can include language in the trust stating that none of the children can force the sale of the property.  It would seem you might be able to include language regarding right of first refusal but I wouldn’t think you could prohibit one of the children from filing a partition action to force the sale.  Has anyone dealt with this specific issue?

Thank you in advance,

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Inge A. Fordham | Attorney
Fordham Law, PLLC
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