It’s rare these days to have one constant place, particularly for senior executives and their families living overseas.
Different life transitions dictate our movements.
Many people move away for education.
Perhaps next comes a larger house with the arrival of children.
Then a move overseas when the opportunities presents.
But legacy family properties can be a powerful grounding force...
We speak with a lot of senior international professionals who not only want help to grow and preserve their wealth...
But distribute it to their families too.
The latter part of financial planning is particularly important as family wealth can drastically decline across generations.
In fact, many family fortunes rarely make it to the third generation.
Deciding on whether or not to pass on a property is a common part of estate planning.
This can be especially poignant if it’s a family home passed down through generations.
Full of memories and love.
It can be a huge gift.
But anyone who has ever shared property with other family members (as many of our clients do) will tell you, it takes work.
Conflict can arise which, if unresolved, can fester and upset relationships.
For this reason, many financial planners recommend selling family properties instead of passing them on to your descendants.
And perhaps selling is the right thing to do for your family.
But such a huge decision should be a group discussion including everyone who’ll be responsible for the successful transition and ongoing decisions.
Aside from needing good communication, planning and commitment...
Keeping a legacy family property (while also keeping the family together) requires money.
And, depending on geographic and personal circumstances, it could take considerable time (months, or even years) to create a plan.
Below I summarise the process as three different phases.
Each phase can result in a decision to sell, or it can result in a plan for passing on ownership.
As it sounds, this involves those who currently own, manage, and control the property, and your team of advisers.
In many cases, the owners are a couple who acquired the property.
Sometimes it’s more than one couple, perhaps when the owners are siblings, or even friends.
Some questions I advise my clients to consider are:
There will be more questions, but the main objective in this step is to become clear about what your vision is for the property and what the potential challenges might be in achieving it.
Whether you plan to keep or sell, the next step is to meet with your family.
This step begins with outlining your vision and what you think makes sense.
If you plan to sell, explain why, so everyone understands.
If you’d like to explore the possibility of keeping the property in the family, let everyone know you want their input.
The goal in this step is to understand what family members want to do and begin exploring how that might work.
With this, you may come to an agreement in this step that it’s time to sell.
Or the discussions may lead you to create a specific plan for transitioning...
This step generally takes the most time.
The objective is to develop a clear understanding of what will be expected and required of each owner/family member.
You need to create a structure and process for management, usage, decision-making, and of course, capital investments.
Some questions I advise my clients to consider are:
1. Don’t force the discussion.
Family members need enough time to process their choices and decisions at their own pace.
2. Where possible, be patient.
This is not always possible, say, with a death in the family or terminal illness creating a sense of urgency.
But the key is to be proactive and prepared, and ideally, begin conversations well before any decisions are required.
You could, for example, formalise family discussions by creating agendas for family meetings.
3. Be open.
You may have a vision that you’re really excited about, but it might not be shared by others.
Be flexible about the outcome, so everyone feels good about the process and supports the eventual decision.
4. Don’t feel you have to go it alone.
You could consider hiring an outside facilitator, particularly if your family is large.
This can improve efficiency and prevent family politics and dynamics from interfering.
5. Observe behaviours.
Conversations about emotionally-charged topics such as money and cherished family properties can be very revealing.
Disagreement and conflict are fine (and to be expected) as long as they can be resolved.
Use the discussion to anticipate how well your family will work together on the property.
Conduct a 'pre-mortem' to talk about what might go wrong.
You won’t be able to anticipate everything, but the more you are able to talk through, the easier it will be to prepare practically.
The following is a list of 7 common things that should be discussed in step 3, as they can cause conflict over time with legacy family properties.
Think of any others that may apply to your family specifically, or to the property itself.
The more your family discuss these, the easier it is to identify and talk through them when they arise.
Issue 1: Differences in usage
The speed at which this becomes an issue will depend on the number of family members involved.
Some may live within driving distance to the property and be frequent visitors.
Others may be in another country, and only visit a few times per year, but for longer stretches of time.
It’s important to be aware of these differences and find ways to accommodate them.
If there is no process, this issue can turn into resentment because some may feel the arrangement isn’t fair.
You could, for example, create a reservation process.
Issue 2: Communication
Strong communication is an essential ingredient in keeping the property in the family.
Create a process that encourages consistent communication, for example, an annual meeting to discuss financial details, make decisions, discuss usage, etc.
Add to this quarterly discussions (virtually is fine).
Identify issues, discuss them and resolve them.
Issue 3: The perceptions of ownership
This issue can be closely tied to usage disparity.
Think of those more frequent users…
They chop the wood needed for the fireplace in winter. They are available and often respond to property management and maintenance needs.
Their perceived ownership (not actual ownership) will be different from those who live further away.
Over time, the geographically closer family members can feel like their hard work should give them more say when decisions need to be made.
At the same time, those who spend just one week on the property per year may begin to sense their input doesn’t count as much.
These issues need to be discussed and aired.
Issue 4: House rules
Don't underestimate this one.
Cleaning, food stocking, storage space, and even parenting styles can all come into play here.
It’s no fun to arrive at a house that isn’t clean or has no food in the pantry when you left it fully stocked on your last visit.
While it might sound petty, establishing clear expectations for these details can go a long way towards family harmony.
Create a checklist and guidelines.
It’s easy to enjoy a place that someone else is funding.
However, it’s extremely rare to have no mortgage on the property, and a funding plan to support capital expenses, taxes, and property management.
The details of ownership structures and their implications are so vast and also vary by country.
Find good advisors who specialise in these matters to help you.
Make sure the model is sustainable for whatever time horizon you think is reasonable for your family’s ownership.
Issue 6: The burden of management
The size and scope of the property will dictate how much time it takes to manage and look after it.
If a lot of hands-on work is needed, consider including property management fees into the annual expenses.
Sometimes family members decide to rotate the management responsibilities, so every member shares the responsibility over time.
If that’s not practical, be clear about what makes the most sense and discuss whether the “manager’s” time commitment should be recognised in some way, perhaps via a reduction in annual fees.
Be mindful of how these decisions might impact everyone’s ownership perception.
Issue 7: Wealth disparity among family members
Sooner or later, this will be an issue if the property remains in the family for a long time.
Perhaps it will first surface when it’s time to renovate the kitchen or roof.
Then annual fees creep in...
Think about how you’ll handle these talks.
Consider using an earned revenue stream, such as rental income…
Some or all of which can be set aside for current or future use.
Consider creating a process for buying out family members who no longer wish to be involved.
Conversely, perhaps you want a process to ensure that the property is available to all family members, regardless of their ability to pay.
There will definitely be other details that are specific to your property or family and need to be included in your family discussions.
We urge clients to consider the realities, talk through them, and use the information to make informed decisions.
Legacy family properties can build long-standing family connections, provide a lifetime of memories and create continuity through generations.
When families plan properly for how they make it work, it can be magical.
What are you trying to preserve?
Is your vision realistic?
If you need any help with your estate or legacy planning, my team and I are here to help.