ᐅ Extension to Parent House: Questions About Inheritance and Property Division
Created on: 10 Aug 2016 15:30
M
Michael187
Hello dear homebuilding community,
I would like to add an extension to my parents' house. I still have some questions and hope you can help me a bit.
Current situation:
Given these conditions, my brother, my parents, and I have sat down together to try to work out a fair and realistic “deal” for everyone involved. The following proposals emerged:
1. My parents transfer half the land to me. Since land subdivision is not possible, I probably need to be added to the land register (title deed)? Or does a condominium ownership structure (similar to an apartment or multi-family dwelling) need to be established? I will pay my brother a quarter now. The other half including the house will be divided 50/50 later.
2. The entire plot remains owned by my parents, and I carry out the extension. Upon their passing, the property will be divided between my brother and me. We are considering that he might get the house since he has been waiting longer for his inheritance.
If financially feasible, I would like to pay out my brother later and take full ownership of the land including the houses.
These are our current thoughts and ideas about the situation. Please give me feedback if there are any mistakes in our thinking or how we could organize this better. I appreciate any comments.
I would like to add an extension to my parents' house. I still have some questions and hope you can help me a bit.
Current situation:
- My parents own a debt-free 1100m2 (12,000 sq ft) plot of land, with an approximate value of 200,000 euros.
- My parents' house is very old (built in 1936), well maintained but not up to modern technical standards. The estimated value of the house is 50,000 euros.
- I have a brother; his inheritance must be taken into account in any agreement.
- I have checked with the local building authority that the land cannot be subdivided.
- My parents want to keep ownership of half the land, including their house, until they pass away.
- My construction project will cost about 350,000 euros.
- If possible, I would like to have my parents’ land registered as collateral (mortgage / deed of trust) to secure a better loan.
Given these conditions, my brother, my parents, and I have sat down together to try to work out a fair and realistic “deal” for everyone involved. The following proposals emerged:
1. My parents transfer half the land to me. Since land subdivision is not possible, I probably need to be added to the land register (title deed)? Or does a condominium ownership structure (similar to an apartment or multi-family dwelling) need to be established? I will pay my brother a quarter now. The other half including the house will be divided 50/50 later.
2. The entire plot remains owned by my parents, and I carry out the extension. Upon their passing, the property will be divided between my brother and me. We are considering that he might get the house since he has been waiting longer for his inheritance.
If financially feasible, I would like to pay out my brother later and take full ownership of the land including the houses.
These are our current thoughts and ideas about the situation. Please give me feedback if there are any mistakes in our thinking or how we could organize this better. I appreciate any comments.
M
Michael18711 Aug 2016 08:00Bieber0815 schrieb:
You want to build on your parents’ property?
Actually, it would be important to know:
- Is there any additional wealth? What income do your parents have? How old are they exactly? Are they married?
- Do you have any additional assets (to buy out your brother)?No, my parents do not have any significant additional assets.
They are both in their early 60s, happily married, and live together in their house.
My father is already retired, my mother plans to work for another 2 years. Together, they receive about 3000 euros (could be more, I’m not entirely sure) in pension income.
I don’t really have any other assets. I have some stocks that I prefer to keep.
Hello Michael,
I have a few questions and comments regarding this:
Who determined this value? Is it a personal estimate?
If the value is plausible, your brother’s inheritance value effectively drops to zero, since your parents’ usufruct right of about 22 years will statistically “consume” the value of the house.
It is also questionable what can or should be done with a house that currently has little value and would more or less need a complete renovation to meet current technical standards, after another 20+ years of use? In its current state, the house probably has a remaining useful life of roughly 20 years, maybe less. This means, conversely, that significant investments would need to be made now in order to preserve any value your brother could inherit in 20 years. Otherwise, your brother would essentially inherit demolition costs.
Furthermore, it should be clarified now in what way the new building will be attached to the old house; in other words: would it be possible to demolish your parents’ house later without affecting your new building?
See above – the question is whether your brother will inherit anything at all besides the land value.
That is possible but quite unlikely. You should contact a publicly certified surveyor from your region – any qualified professional can quickly explain your options; they just need the exact address or parcel identification (district, section, parcel number).
If I were your brother, I would oppose that. For this reason, it is essential to check thoroughly whether subdivision is indeed not possible – otherwise, you have to resort to the workaround of "partial ownership," which legally means everything is somehow connected. For the lending bank, this is advantageous because they can claim all assets involved if necessary. For your brother, this is a disadvantage, because if you fail to repay the loan, everything could be sold at a forced sale. Neither you, your brother, nor your parents would want that.
The idea of paying out one quarter is completely unclear to me. This complicates everything.
In any case, you would become an owner in the land register, supplemented by a partition plan.
The entire plot will not remain in your parents’ ownership.
At that point, there will be no more division; your brother will fully take over your parents’ shares unless he is paid out partially beforehand.
Have a notary explain this to you in detail – in my opinion, some of your thoughts are heading in a completely wrong direction.
From my assessment, the arrangement is very unfavorable for your brother because he bears the full risk that your parents’ house will still have any value in 20 years. Additionally, he carries your loan default risk. He basically has to hope to invest regularly now and in the future, fully renovate and/or demolish the house in 20 years before he can build or live there himself.
You, on the other hand, get building-ready land and can proceed as you wish immediately.
Kind regards
Dirk Grafe
I have a few questions and comments regarding this:
Michael187 schrieb:
- My parents’ house is very old (1936), well maintained but not up to modern technical standards. The estimated value of the house is 50,000 Euros.
Who determined this value? Is it a personal estimate?
If the value is plausible, your brother’s inheritance value effectively drops to zero, since your parents’ usufruct right of about 22 years will statistically “consume” the value of the house.
It is also questionable what can or should be done with a house that currently has little value and would more or less need a complete renovation to meet current technical standards, after another 20+ years of use? In its current state, the house probably has a remaining useful life of roughly 20 years, maybe less. This means, conversely, that significant investments would need to be made now in order to preserve any value your brother could inherit in 20 years. Otherwise, your brother would essentially inherit demolition costs.
Furthermore, it should be clarified now in what way the new building will be attached to the old house; in other words: would it be possible to demolish your parents’ house later without affecting your new building?
- I have a brother; his inheritance must be taken into account in the agreement.
See above – the question is whether your brother will inherit anything at all besides the land value.
- I checked with the building authority that the plot cannot be subdivided.
That is possible but quite unlikely. You should contact a publicly certified surveyor from your region – any qualified professional can quickly explain your options; they just need the exact address or parcel identification (district, section, parcel number).
If possible, I would like to register my parents’ land as a mortgage to obtain a better loan.
If I were your brother, I would oppose that. For this reason, it is essential to check thoroughly whether subdivision is indeed not possible – otherwise, you have to resort to the workaround of "partial ownership," which legally means everything is somehow connected. For the lending bank, this is advantageous because they can claim all assets involved if necessary. For your brother, this is a disadvantage, because if you fail to repay the loan, everything could be sold at a forced sale. Neither you, your brother, nor your parents would want that.
1. My parents transfer half of the plot to me. Since subdivision is apparently not possible, I probably need to be registered in the land register? Or does a condominium ownership / homeowners association (similar to apartment buildings, i.e., strata title) need to be established? I am paying my brother one quarter now. The other half, including the house, will be split 50/50 later.
The idea of paying out one quarter is completely unclear to me. This complicates everything.
In any case, you would become an owner in the land register, supplemented by a partition plan.
2. The entire plot remains in my parents’ ownership; I am building now.
The entire plot will not remain in your parents’ ownership.
Upon my parents’ passing, the property will be divided between my brother and me. We are considering that he receives the house because he has already waited longer for his inheritance.
At that point, there will be no more division; your brother will fully take over your parents’ shares unless he is paid out partially beforehand.
Have a notary explain this to you in detail – in my opinion, some of your thoughts are heading in a completely wrong direction.
From my assessment, the arrangement is very unfavorable for your brother because he bears the full risk that your parents’ house will still have any value in 20 years. Additionally, he carries your loan default risk. He basically has to hope to invest regularly now and in the future, fully renovate and/or demolish the house in 20 years before he can build or live there himself.
You, on the other hand, get building-ready land and can proceed as you wish immediately.
Kind regards
Dirk Grafe
We, or rather my wife, have just been through a similar situation. Her sister built an extension onto their parents’ house. Their parents are even almost 10 years younger. Such matters are very difficult and require careful consideration. The sums involved were somewhat lower in their case (extension cost: €180,000 (about $195,000), house value including land: €170,000 (about $185,000)). After much thought, they transferred the property and house to the sister, while the parents retained a lifelong usufruct right (with many special clauses and scenarios governing how the house would revert to the parents). The sister would also take care of the parents if needed. Legally, this arrangement is probably the most interesting because each occupant of the property is protected. Unfortunately, the situation was difficult for my wife because, due to the usufruct right and the parents being relatively young, she actually had no inheritance claim. This was offset by the notary and would have ended up as a break-even. They then found another agreement that made everyone happy. She was paid a certain amount and thus gave up ownership and inheritance rights to the house. Of course, she would have preferred if ownership transfer had only happened after the parents’ passing, but in return, she now has the money and no further contracts related to the parents’ care. Additionally, because of the usufruct right, the house is virtually unsaleable for the next 10-15 years.
From my perspective, your two scenarios are not feasible. Naturally, your parents do not want to give up their property. This makes them feel like they are giving away all their belongings and ending up with nothing, which is a very human and understandable viewpoint. However, if they are certain that both of you sons will inherit the property, it ultimately makes no difference to them. They can live there forever and do as they please, provided they have a usufruct right. Perhaps you should discuss this scenario in detail with a lawyer to address their concerns.
Everything else is very risky for you because you can never predict how things will develop. You currently have a property valued at €250,000 (about $270,000) and want to invest €350,000 (about $380,000). Then you end up with a house that you only partly own, on land you do not fully or only partially own. What happens if your parents decide to sell their share? What if they suddenly bring in tenants you don’t get along with? What if you fall out with your parents and they leave the entire inheritance to your brother? Furthermore, any construction work must be approved by all owners (bureaucratic effort), and you will have to register many agreements and contracts (expensive!).
The house may currently be worth €50,000 (about $55,000) if that value is accurate. What will it be worth after the renovation, and what share belongs to your parents? By living area? By financial contribution? How will the value change until your parents pass away, and what will their share be then? It is entirely possible that land and house prices in your area could fall sharply by then (which would work in your favor). However, if prices rise significantly, you will end up effectively paying twice for the house.
This is all very complicated and will likely cause tension within the family due to differing expectations. However, the arrangements are much simpler now than they will be in a few years. Don’t make the mistake of postponing everything to avoid conflicts. Later, these problems could become much worse, potentially with an unpleasant surprise.
Otherwise, consider finding a building plot and constructing a new house. For €350,000 (about $380,000) plus a possible payout to your brother of €100,000 to €125,000 (about $110,000 to $135,000), you could build a new home.
From my perspective, your two scenarios are not feasible. Naturally, your parents do not want to give up their property. This makes them feel like they are giving away all their belongings and ending up with nothing, which is a very human and understandable viewpoint. However, if they are certain that both of you sons will inherit the property, it ultimately makes no difference to them. They can live there forever and do as they please, provided they have a usufruct right. Perhaps you should discuss this scenario in detail with a lawyer to address their concerns.
Everything else is very risky for you because you can never predict how things will develop. You currently have a property valued at €250,000 (about $270,000) and want to invest €350,000 (about $380,000). Then you end up with a house that you only partly own, on land you do not fully or only partially own. What happens if your parents decide to sell their share? What if they suddenly bring in tenants you don’t get along with? What if you fall out with your parents and they leave the entire inheritance to your brother? Furthermore, any construction work must be approved by all owners (bureaucratic effort), and you will have to register many agreements and contracts (expensive!).
The house may currently be worth €50,000 (about $55,000) if that value is accurate. What will it be worth after the renovation, and what share belongs to your parents? By living area? By financial contribution? How will the value change until your parents pass away, and what will their share be then? It is entirely possible that land and house prices in your area could fall sharply by then (which would work in your favor). However, if prices rise significantly, you will end up effectively paying twice for the house.
This is all very complicated and will likely cause tension within the family due to differing expectations. However, the arrangements are much simpler now than they will be in a few years. Don’t make the mistake of postponing everything to avoid conflicts. Later, these problems could become much worse, potentially with an unpleasant surprise.
Otherwise, consider finding a building plot and constructing a new house. For €350,000 (about $380,000) plus a possible payout to your brother of €100,000 to €125,000 (about $110,000 to $135,000), you could build a new home.
M
Michael18711 Aug 2016 14:21Hello Dirk Grafe,
Thank you for your detailed response.
The 50,000 euros is just an estimate from me (us). We simply looked at how much similar houses in our neighborhood have been sold for and subtracted the value of the land (Boris). It probably won’t be worth much more than that. The valuable part is clearly the land since it is located in a very nice area. It is more or less out of the question that my parents will invest significantly in the house now. Only a few adjustments for aging will be made, such as a walk-in shower.
My house will be built as an extension so that the demolition of my parents’ house would still be possible.
Since dividing the plot is clearly preferred by us, we researched through several channels. Unfortunately, it cannot be subdivided.
So, the idea to pay out the ¼ should work as follows:
My parents transfer half of the land to me. From this half, I pay my brother half of it (in money), which means a quarter of the entire plot (50,000 euros). The other half, including the house, remains with my parents. This half will be divided again in case of inheritance, whether with profit or as a loss (demolition costs). The idea behind this is that my brother now receives exactly the same amount as I do. No one owes anything to anyone else.
Regarding solution approach 2
Why can’t the land remain in my parents’ name?
I am open to other solutions. Any suggestions?
Thank you for your detailed response.
The 50,000 euros is just an estimate from me (us). We simply looked at how much similar houses in our neighborhood have been sold for and subtracted the value of the land (Boris). It probably won’t be worth much more than that. The valuable part is clearly the land since it is located in a very nice area. It is more or less out of the question that my parents will invest significantly in the house now. Only a few adjustments for aging will be made, such as a walk-in shower.
My house will be built as an extension so that the demolition of my parents’ house would still be possible.
Since dividing the plot is clearly preferred by us, we researched through several channels. Unfortunately, it cannot be subdivided.
So, the idea to pay out the ¼ should work as follows:
My parents transfer half of the land to me. From this half, I pay my brother half of it (in money), which means a quarter of the entire plot (50,000 euros). The other half, including the house, remains with my parents. This half will be divided again in case of inheritance, whether with profit or as a loss (demolition costs). The idea behind this is that my brother now receives exactly the same amount as I do. No one owes anything to anyone else.
Regarding solution approach 2
Why can’t the land remain in my parents’ name?
I am open to other solutions. Any suggestions?
M
Michael18711 Aug 2016 14:48Hello BIBO,
I completely agree with all of your statements.
Of course, the best option would be for the entire property to be transferred to me, with my parents obtaining a lifelong usufruct right. However, this would require me to buy out my brother now. Unfortunately, I don’t have the money for that at the moment. So, we are looking into other options. As you can see, we are still having some difficulties here. Therefore, I am grateful for any suggestions.
I completely agree with all of your statements.
Of course, the best option would be for the entire property to be transferred to me, with my parents obtaining a lifelong usufruct right. However, this would require me to buy out my brother now. Unfortunately, I don’t have the money for that at the moment. So, we are looking into other options. As you can see, we are still having some difficulties here. Therefore, I am grateful for any suggestions.
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