Q: Our family is going through the distribution of our parents’ estate. My parents owned a family summer camp and we are trying to figure out a formula for the future ownership of the property.
The camp is a piece of property with a two-family residence, an upstairs and a downstairs. My oldest brother purchased the camp with our parents years ago. He has turned over ownership of the bottom half of the building to his three sons.
We’re wondering how to divide ownership of the upper unit. I have five brothers and each of us is inheriting 1/6 of the upper unit.
Four of the brothers want to be bought out. The value of the house (both the up and down units) and the land was appraised at $365,000 in April 2006. The brothers who want to be bought out think $30,000 is a fair price for each share.
Two brothers would purchase the upper unit and my three nephews would retain ownership of the lower unit.
My accountant suggested looking into creating a fractional interest ownership since we are not receiving full controlling interest in the property. What do you think? And what is a fair price to pay our brothers?
Thank you for your time.
A: Let’s start at the top: If the camp was appraised at $365,000, then half of that (assuming both the upper unit and lower unit are each worth the same) is $182,000. That number divided by 6 is the $30,000 price per share that your brothers want.
The two brothers who are planning to retain ownership of the top unit should pay $60,000 each for a total of $120,000 that will be distributed to the four other brothers at a rate of $30,000 each. The four brothers should sign a document indicating that they are being bought out of their interest in the camp.
There are many ways of owning an interest in real estate and in an ongoing business such as the camp, such as a partnership or other corporate structure.
In any event, each of those methods of structuring the ownership will need you and the other owners to determine the responsibilities each owner will have, the method of managing the property and camp, and provisions to determine how each owner can sell his or her shares. Above all, the method of ownership will need some mechanism to decide who will run the business and how profits, if any, will be shared.
You will need the services of an experienced real estate attorney or perhaps an corporate attorney to help you do this properly.
April 23, 2007.