Property Owned in Family Trusts - A Recipe for Conflict

Photo of Kurt S. Kusiak

When parents or grandparents are able to pass down residential property or a family business to their children and grandchildren, it should be a piece of the American Dream come true. And, with foresight, good planning and a little bit of luck, it can be. Too often, however, these "gifts" can devolve into situations that tear extended families apart. It often doesn't take long before family members start to treat each other unfairly and eventually become openly hostile towards each other.

With respect to residential properties, some of the more pressing issues that often arise concern:

  • which family members get to use the property during certain times;
  • whether future generations should all receive equal ownership shares of the property and share equally in its costs;
  • how much maintenance the property requires and who pays for it;
  • whether the property should be improved and who pays for it;
  • whether the property should be rented out during certain times and to whom;
  • what happens when some family members want to sell their interest in the property; and
  • whether the property should be sold when some family members use and want to keep it and others do not.

When the property is held through a trust, a well-crafted trust agreement or side agreement can often resolve some of these issues before they become serious problems. When not foreseen and adequately planned for, however, family disputes regarding these issues can quickly reach a boiling point. I have found that mediation, if approached in a structured and goal-oriented way, can often resolve such disputes. If some family members are too entrenched to successfully mediate and litigation is necessary, it's best to seek court resolution quickly and decisively. Once the gloves are off, delay simply extends the pain and expense for all involved.

With respect to family businesses, the most pressing issues typically concern:

  • who should own the majority of the business or otherwise have control over major business decisions;
  • salary compensation for family members who work in the business versus periodic distributions of profit to owners;
  • whether all family members are perceived as "pulling their weight" with respect to their contributions to the business;
  • what happens when family members get divorced;
  • under what circumstances the employment of family members can be terminated;
  • compensation for family members who wish to sell their ownership interest; and
  • succession planning.

Again, good planning and carefully drafted partnership agreements or limited liability company operating agreements can resolve many of these issues and prevent serious disputes from arising. Mediation can also be extremely effective if planned properly and if resolution includes a carefully-drafted settlement agreement that both resolves the current issues and prevents foreseeable future problems from arising. Litigation should be a last resort, but should also be anticipated and planned for. Being prepared to move quickly should mediation fail can dramatically change the final result.

No Comments

Leave a comment
Comment Information
  • Super Lawyers
  • Best Lawyers | Best Law Firms | U.S.News & World Report | 2018
  • Preeminent AV | LexisNexis Martindale-Hubbell Peer Review Rated For Ethical Standards and Legal Ability