There are many important estate planning elements related to a shared ownership arrangement.
First, think about who will receive the ownership interest when one of the owners dies and define it clearly in writing. You will also need to define how estate taxes will be paid.
In figuring out ownership interests, you’ll also need to think through how you want your assets divided at your death.
Parents often seek to distribute their estate equally to their children. But be aware that what looks like an equal division of assets is not always what it might seem when it comes to shared homes.
Family limited partnership option
Another option to consider is shared ownership using a family limited partnership.
The family limited partnership agreement would lay out how the property will be used and maintained, and how any home renovations will be handled. A family member could make a capital contribution or loan to the partnership to pay for any improvements and all loans and contributions would be tracked.
The agreement would explain that, when a family member exits the arrangement, the home will be appraised to determine the fair market value of the departing partner’s interest. At that point, the other family members sharing ownership of the home can buy out the partner who is leaving or decide to sell the home entirely.
If the home is sold, any secured loans would be paid, along with closing costs and expenses. After any capital contributions are repaid to the partners, the net proceeds of the home sale would be divided based on each family member’s interest in the partnership.