The Big Move: My siblings and I own land worth $1.2 million. My sister wants to build a house on it. If she dies, will her children inherit the house?

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Dear MarketWatch,

I own a piece of property with my two sisters and a brother. The property is currently worth $1.2 million. The property is a tenancy in common with equal shares owned by my brother and sisters. 

One of the sisters wants to build a home on the property. How would this affect myself and my siblings? 

What if my sister who builds the house happened to die or become incompetent? I read that with tenancy in common that her portion would go to her surviving children. 

It seems somewhat confusing to me. Would her children own the house and her portion of the property? What if they do not pay the mortgage? 

Please advise.

Signed,

Confused and concerned 

The Big Move’ is a MarketWatch column looking at the ins and outs of real estate, from navigating the search for a new home to applying for a mortgage.

Do you have a question about buying or selling a home? Do you want to know where your next move should be? Email Aarthi Swaminathan at TheBigMove@marketwatch.com.

Dear Confused,

What you’ve described is definitely a sticky situation. It’s not an uncommon one, but it’s still laden with the potential for major drama.

Your sister wants to build a house on a property you and your siblings jointly share. You’re all co-tenants in this situation.

And the situation is complex: Are you all planning to live in it, or is this just for her? Is there a house already on the premises, and this is a secondary home, or is it the first home on the property? And is this going to occupy a considerable amount of the land or just a small part?

If your sister is planning to build a new building as her primary home on your shared property, then proceed with caution.

Tenancy in general ‘can be quite confusing,’ and ‘the mortgage is a whole separate can of worms.’

Because if she builds this house and makes it her home, your siblings and you likely still have the right to use that property, which could become a very awkward situation.

Tenancy in general “can be quite confusing,” Geoffrey Kunkler, an estate attorney with the law firm Carlile, Patchen & Murphy in Columbus, Ohio, told MarketWatch.

It’s not an ideal type of ownership structure that should continue in perpetuity, he said, “particularly as the original owners want to transfer their interest or pass away leaving their interest to other parties.”

Bottom line: If your sister builds that house on your shared property, and ends up leaving the house to her children, it dilutes the ownership further.

You’re right in your understanding that there are no “survivorship rights,” i.e. if your sister passes, that property she built would not automatically be owned by you and your surviving siblings. 

Instead, if your sister passes, what she has in her will would determine who gets the property. If she leaves her share to her children, then they’ll be responsible for the costs and upkeep. So if you and your three siblings equally own a fourth of the property, her children, if there are two of them, would hypothetically get an eighth of the land each.

But “the mortgage is a whole separate can of worms,” Kunkler added.

The share of children living in multigenerational households doubled between 1980 and 2018.

I’ve seen people co-exist after deciding to all live together on the same property: Families who share ownership of a lot have come together to build a multi-family unit and live together, perhaps on different floors or different wings of a house. That may be another option for your family, if your sister were amenable, since you get to retain your ownership of this $1.2 million property, plus enjoy living on it alongside your sister. (One caveat: I’m not sure of where you live, and if local zoning laws restrict such a move.)

In some parts of the world, this sort of multigenerational living is common. And consider this study by the Census Bureau that shows that this style of living is on the rise in America, too: The report found that between 1980 and 2018, the percentage of children living in multigenerational households nearly doubled, from 5% to 9.9%. 

Whatever the case is, before anyone decides to put a shovel in the ground, you and your siblings should consider really modifying the ownership structure of the property, Kunkler advised, “to better reflect the intention of all parties and to make sure they are all protected before undertaking this significant improvement and altered used of the property.”

I’ve heard this situation play out before: A distant relative had in the past wanted to buy a piece of land, but since he was unable to come up with the full amount, he got a few other brothers involved as investors. Decades passed, and he decided to live in that spot and build his primary home. What did he do? He bought his co-investors out. Now I don’t know if that’s an option for your sister, but to me, that seems like a clean way to get this done.

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