Planning to leave the family bach to the next generation and beyond? Think carefully. Jane Phare looks at the pitfalls and problems that come with intergenerational ownership.
“You could write a soap opera about this,” says Geoffrey,* the co-owner of a bach he inherited from his parents.
He’s referring to the tensions, irritations, personality clashes and mini-dramas that have played out in the years since his parents died, at which time he and his siblings inherited the iconic, beachfront bach they had grown up in.
The memories are golden, a large family sharing a 60s bach, kids running around between houses; extended family and friends coming to stay, bodies squashed on mattresses on the floor or in tents out the back; the mums cooking dinner for 10, 15, 20 or however many happened to be there on the night; the dads helping with bach maintenance, tree trimming, lawn mowing, fish filleting.
But the parents who held that golden dream together are long gone. Since then, husbands, wives and partners have added to the mix, and now another generation of children, and step-children.
The original mum-and-dad gene pool and future ownership is now so diluted Geoffrey is unsure, off the top of his head, how many family members are now entitled to use the bach, or what its future might hold.
He wants to keep it in the family, hold on to that golden dream. Some of his other siblings are not so committed, or are overseas, and his own, grown children are not that interested in driving the hours it takes to get there and sharing basic facilities with extended family members they might have little in common with, or even like.
Take a cross-section of any seaside, lake or riverside holiday-home settlement, with baches passed down to the next generation - and sometimes the generation after that - and the same pot pourri of issues will bubble up:
- one sibling lives overseas and resents having to share expenses – rates, insurance, maintenance – on a property they rarely use
- another wants to use their share of the inheritance to clear a mortgage, rather than a share in the bach
- one sibling was wealthy enough to buy the others out but now the holiday home is worth five times the agreed price, causing resentment
- family members who rub each other up the wrong way, or dislike a sibling’s spouse or partner
- arguments over who gets the coveted Christmas-New Year period and who’s in charge of the holiday roster
- resentment from siblings who do the majority of the maintenance and repairs, and don’t see why they should pay the $50-a-night usage family members have agreed to pay
- resentment over who gets the sunny bedroom off the front deck
- disagreements over how much to spend on renovations or extensions, or whether they’re needed in the first place
- different standards of housekeeping
- future ownership of the next generation (grandchildren)
Don’t saddle your kids with emotional baggage
Take your pick, says retired Rotorua lawyer and trust expert Ian Blackman. He’s unequivocal in his views on inheritance. Don’t saddle your children with emotional baggage from a bygone era by insisting they have joint ownership of the family holiday home, he says. Do let them make up their own minds about whether or not they want to keep the property.
“Multiple ownership of any asset brings with it a whole range of issues which people don’t consider.”
Consult a good lawyer, Blackman advises, one who won’t blindly follow instructions but instead who will outline the problems they could be setting up for their children.
“That lawyer should be explaining to parents the dangers of leaving a bach to all of the children equally.”
It was advice Blackman gave his own late father who left his beloved Turangi fishing cottage, on the banks of the Tongariro River, to his three children in equal ownership.
He warned his own father, “You’re just courting disaster”.
Indeed, the joint ownership resulted in tensions, largely centred around one sibling using the bach constantly during the school holidays. In the end Blackman bought out his brother and sister, who bought their own holiday homes. But, he points out, not everyone can afford to buy out their siblings’ share.
Now he and his wife Wendy are unsure what to do with the cottage.
“Do we bowl it or do we renovate it, or leave it the way it is?”
They’ve parked the decision until their adult son and daughter, both living overseas, return to New Zealand. The kids want it kept in the family for “emotional reasons” including an attachment to their grandfather who lived there in his later years. But, says Blackman, they have no financial or practical involvement in maintaining the cottage.
‘It’s just another burden’
“Honestly, it’s just another burden for us. We hardly ever use it.”
And make no mistake, the Blackmans won’t be leaving joint ownership of the Turangi bach to their two children.
Instead, it will become part of the surviving spouse’s inheritance and after that, part of the estate residue. As Blackman always advised his own clients, instructions will make it clear that everything in the estate can be sold and the cash distributed equally.
“If either one or other of the children want to buy it or own it jointly, they can do it on their own.”
Blackman acknowledges that with the soaring values of some holiday homes, possibly bought by parents in the 1960s for $100,000 or less, a sibling wanting to keep a family asset may not have enough funds to buy the others out, and there may not be enough cash value in the estate residue.
Too bad, Blackman says, the property will need to be sold.
“But would you rather have that or a family that doesn’t speak anymore?”
Several of the Baby Boomer generation who have inherited holiday homes from their parents had stories to tell of sibling tensions and disagreements over how to run the property.
Things got so bad between three children who inherited a Bay of Islands property that in the end the only option was to sell it. Now, two of the siblings no longer speak to the third one, their children growing up without knowing their cousins – not the outcome their late parents could have foreseen.
‘Fairyland idea’
Blackman says the notion that siblings, and their spouses or partners, will get on well enough to own a bach together without tension is “some sort of fairyland idea”.
Parents need to think through their wishes that the family continue to share memories of “all the Christmases we had there” and instead think of the practicalities.
“One of the issues is how do you fund it?”
He warns against entrenching a property with emotional value into a legal structure or ownership.
“If they (the children) want to do that, let them do that but don’t you perpetuate or create the problem.”
Having multiple owners is fraught with problems, he says, and relies on everybody being reasonable, wanting to cooperate, and using the bach equally. Dismantling that ownership in the future can be “tricky and divisive”.
One sibling might be relying on the inheritance to pay off debt and wants his or her share of the bach released. Immediately there’s a conflict, he says.
Fraught with problems
Auckland barrister Bill Patterson, a trust and estate expert with Patterson Hopkins, agrees joint ownership can be fraught with problems but is not convinced including a family holiday home in the estate residue is the answer either.
He refers to his own bach at Waihi Beach. He wouldn’t like to see his adult children sell up and then regret it later.
“It’s an icon that isn’t going to be easily found again. Maybe even rent it out but keep it at all costs.”
In the future, when adult children have children of their own, and possibly return to New Zealand from overseas, suddenly the family bach becomes a good place to go, he says.
He acknowledges the issues that joint ownership can create.
“My view is ‘get over it. You guys figure out the solution.’”
Patterson’s reservations about estate residue is that by law beneficiaries don’t have any specific interest in the residue assets.
Those assets are largely under the control of the executors of the will, who could be two of four family members or professionally appointed people such as lawyers and accountants.
The executors may not share the same attachment to a property and just want to get the job done – sell the assets and divide up the proceeds, Patterson says.
“I think owners (of assets) need to be pretty precise in the will (about) what they want.”
One option is for parents to work out during their lifetime who in the family is most attached to the bach and might want to keep it. That child, or children, should be given an “option to purchase” the property in the will.
“But the difficulty with it is they mightn’t be able to afford it.”
A little bach worth millions
He points to little beachfront bach bought decades ago at places such as Onetangi on Waiheke Island.
“The bach is worth nothing but the land is worth a fortune.”
Blackman’s seen that with farming families who, decades ago, bought a place at somewhere such as Cooks Beach (Pukaki) for $80,000 as a way of taking a break from the farm.
“And then they pass away and it’s worth a million dollars,” Blackman says.
Geoffrey is already awareownership of his parents’ idyllic bach is now too diluted and complex to find an easy solution. His only option, he says, is to let the situation drift and hope it doesn’t cause any more family disharmony. In hindsight the best option might have been to sell the property after his parents died and divide the proceeds.
“Then nobody could complain. They might not be happy but no one could say they have been unfairly treated.”
But, he says, even though he now thinks selling up years ago was probably the “rational” thing to do, he found it hard to accept that possibility because of his parents wishes and his own childhood attachment to the bach.
Now he ponders questions he has no control over. If one of his siblings dies, leaving behind both children and step-children, should the step-children also inherit a share of the bach? Geoffrey’s view is that they should, but who knows? It will be a group decision.
When a family fight goes public
Normally the rumblings and resentments over inheritance stay behind closed doors but occasionally they burst into the public arena.
The late Morris and Rosalie Parkins are likely to have been devastated to see their three sons fight over their beloved holiday property in the Marlborough Sounds, first in the District Court and then in the High Court. The 49ha property at Oyster Bay was passed down to the three brothers in equal shares with the idea that they, and future grandchildren, could continue to enjoy it.
But one of the brothers, Grant, claimed he had contributed more to the development of the property and was therefore entitled to a larger share of the value of improvements, a claim his brothers disputed.
He lost his case and the subsequent High Court appeal last year. One family member said the fighting had caused heartbreak and some hadn’t visited the property in years because of the “nasty taste” the dispute had left behind.
Patterson says if bach owners are intent on keeping the property in the family there are various solutions to consider, but also pitfalls.
“There are heaps, and I’ve probably seen all of them. People just need to accept there is no perfect solution.”
One of the consequences of leaving property to children in equal shares is that any one of them can apply to the court to direct a sale and division, he says.
One option is to create a trust and include a provision in the trust deed that the property cannot be sold unless all the adult beneficiaries at the time, which could include grandchildren, give their consent or the court gives its consent.
Another is a co-ownership model, a property-sharing agreement that sets out the terms and conditions including buy-out rights and how other co-owners would get paid out.
“Of course that’s always the problem with these places. There will always be someone who uses it more than others.”
He, too, has witnessed the squabbles in families sharing baches. Someone’s re-arranged the furniture, or removed something from the bach, or towed the boat back to Auckland to use for a long weekend.
“I’m yet to see the perfect solution.”
Treat your kids equally
He advises clients to treat their children equally in their will and warns family dynamics can change after the parents die.
“The glue that’s kept the family together is suddenly not there and you’ve got no idea what comes out of the woodwork.”
Pam* who has a beach house in Coromandel says in her enclave she’s seen it all with families in dispute over how to share an inherited holiday home.
But she’s also seen inter-generational sharing work well, with each family group taking a turn at getting first pick for holiday times at the bach for the coming year, and working out a schedule for bach maintenance work.
“But that’s with the (elderly) parents still alive. What’s going to happen when you get to two generations down? "
The “lucky ones” belong to families who had the money and foresight to buy two or three sections at the same beach for their children to inherit.
“But that just defers the pain down another generation doesn’t it. It doesn’t really alter the problem.”
Pam and her husband haven’t yet decided what to do with their family bach but she’s not in favour of tying up the property in a legal structure.
“I’m not entirely of the view that leaving a house for your children is a particularly good idea. There’s an awful lot of examples I can think of where people do fall out.”
Neither is she convinced that tying up the holiday home in a trust for children and grandchildren is the answer.
“It’s sort of controlling their futures and I’m not keen on that. You’re taking your children’s power away from them and stopping them from being adults.”
Patterson acknowledges that leaving inherited properties in trusts for child beneficiary can be problematic. Under the Trusts Act, assets can be tied up for as long as 125 years, making them difficult to sell.
“And if the trust has no other source of income and the place starts to get run down or derelict, what then?”
And he warns that there is a “big issue” with trusts involving beneficiaries living overseas.
Although New Zealand has no capital gains or wealth tax, other countries do.
“Using a trust model for kids living overseas, you need to be careful you don’t create other issues.”
The beneficiaries may be saddled with reporting obligations, and possible tax implications. If the holiday home is sold and a beneficiary is living in Australia, that person will be faced with paying capital gains tax.
*Names have been changed to protect identities
Jane Phare is a senior Auckland-based features and investigations journalist, former assistant editor of NZ Herald and former editor of the Weekend Herald and Viva.