Six Ways Shared Use Agreements Can Keep Assets in the Family
November 17, 2021
Holiday season is quickly approaching, and with this season may come challenging conversations around shared family assets. It’s a lovely tradition to have a family compound, cabin, boat or plane that we all spent the holiday at during our parents’ or grandparents’ lives, and it makes sense that we want to pass these possessions down to continue the traditions. However, we just might not have considered the unintended consequences of multiple people collectively managing such an endeavor. When one person takes on an asset and understands the fees or maintenance and keeps the calendar, it runs smoothly. However, when we include more people, we include more opportunities to collaborate that can end in either agreement or disagreement.
One way to address those challenges is to co-create a document commonly referred to as a shared use agreement. This can be done as you’re planning the transition of the asset or as you have received the asset through inheritance. This dialogue is useful even if the asset is handed down in trust that covers the maintenance and taxes, because addressing the financial aspects alone will displace dialogue. It often helps to have these conversations facilitated, since the way they used to be managed were from a party who had a say, and most others were glad to just participate (e.g., siblings, cousins). Now that the person who was in charge is no longer in the picture, this this creates a more equal relationship that lacks central direction. As a result, the family needs to create a pathway, which can become tricky. Below are six ways to make it easier to deal with assets that are shared amongst family members.
1. Set Behaviors and Expectations
When an asset is passed along, there could be more than one person involved. How do we make decisions about the asset that used to belong to someone else? It is one thing to visit mom or dad’s beach house, but now I might want to redecorate, and my sister may want a housekeeper to clean up because vacations are for rest. When we get to decide how to use the asset, we need to set our ground rules that can cover behaviors when at the property as well as the sweat equity. How do we leave the property on each visit?
2. Allocate Maintenance and Upkeep Expenses
Inheriting a beach house or a classic car sounds like a win. However, it’s not all upside all the time, especially when considering an asset that may also go to your next generation. There comes a level of investment. What happens when the grass is overgrown at the house? What happens when the classic car develops a mechanical problem? Who is responsible for paying for these issues? Shared agreements address these and other questions that may be overlooked. Determining how expenses and maintenance will be paid and allocated amongst those who have permission to use them is a challenging conversation. Do we use proportion of ownership as a percent of payment? Who is there more often? Number of visits? This prevents family members from being blindsided by the financial responsibility of the asset. Other shared charges usually include property taxes.
3. Develop a Shared Calendar
These assets were passed on because they were a significant part of the family’s traditions, and this means people will want to continue that in some ways and at varying levels. Issues may arise when one family member uses the asset more than others, when two members want to use the asset at the same time, or if the asset is used in a way deemed inappropriate by other members. Having these conversations before the asset owners pass away and co-creating a shared use agreement will help prevent the perceptions of personalization when deciding usage. This is especially helpful during holiday season when sharing certain assets, like houses, have an emotional value, such as “my family used to spend time with grandma here.”
4. Know Your Exit Options
Inherited property comes with responsibilities such as maintenance, utilities, taxes, repairs and so on. Should these responsibilities become more of a burden than benefit, family members may decide to part with the asset. There needs to be terms of agreement between heirs regarding the sale of an interest in the asset. There may be options for the remaining heirs to buy out the other family member, or it may mean that a full sale is triggered, and there may be options in between. A transition like this can take months and may increase an already emotionally challenging situation.
5. Establish Asset Value
There are multiple ways to decide the value of inherited property, including hiring a professional appraiser or checking with the county clerk to find the most recent assessed value of a similar home in the neighborhood. The ways in which heirs may assess the value of the asset should be included in the shared use agreement as a guideline for future conversations should members consider divesting.
6. Create a Dispute Resolution Agreement
The last thing you want when trying to benefit your family is the asset to become a source of family tension. Conflict is a natural part of family life and strategies to manage that are going to be most helpful. Coming up with ways to resolve the challenges of evolving ownership is the most effective way to ensure this asset stays a source of pleasure instead of pain. This can include strategies for consensus, voting and reaching out to a mediator.
When you’re trying to keep family traditions alive, the places and possessions involved in creating them take on a life of their own. With some planning, you can put in place some guardrails to make sure these assets stay the course you set. Where there is confusion or a lack of clarity, there is conflict—especially in families. Shared use agreements support families in establishing clear guidelines for their assets before conflict derails the memories.