Dear Quentin,
Per our parents’ will, my brother and I will split their inheritance 50/50. This includes the family house. I would like to keep the house in the family for my children, as I bought my current home nearby to be able to care for my parents as they aged.
I understand the best time to sell a home is soon after inheriting it, to avoid capital-gains tax. The issue is that my brother is single and currently living in the house, and he may not want to sell his portion right away. I would be happy to let him live in the house that we jointly own.
I worry that he may decide to sell his half and I’ll have to take a financial hit, or that he’ll get married and live in the home with his family, which may complicate matters. How do I ensure my interests in the home are protected while making sure I do right by my brother?
Thank you so much.
Complicated Matters
“If due to financial or familial reasons you did flip a coin, agree that the end result is the right result, whether either of you likes it or not: Heads you win. Tails you win.”
MarketWatch illustration
Dear Complicated,
Your last question is both a good one and rhetorical. Your interests are already protected: You are entitled to 50% of this home, not 100%, as you rightly suggest. Inheriting a property with a single sibling who does not have children does not automatically entitle the sibling with children to full ownership, and/or obligate that sibling to sell their share to you. Real-estate inheritances can cause discord among siblings. Not everyone understands this, as you apparently do.
You can do right by your brother by asking him what he wants, too. This appears to be the only home he has known, and one could argue that he has an equal — or even 50.1% — right to buy you out, given that you live elsewhere with your family. If he wishes to continue living there, it would be generous and compassionate of you to allow him to do so. Many siblings would insist on cashing out and filing a quitclaim to turf their sibling out of the family home.
You’re correct in that the house will be passed down to you through a “step-up in basis” valued at the current value, not the purchase price, which reduces your capital gains tax if/when you sell. If the house was sold for $ 1 million, even though it was originally purchased for $ 500,000, you and your brother would have to pay capital gains tax on $ 500,000, if you decided to sell, you would pay long-term capital gains on the appreciation post-inheritance.
Rite-of-passage scenario
There is, however, no definitive right or wrong path on your familial dilemma, except that you both navigate the process with transparency and respect. If he has lived in the house his entire life, and gets married and has kids, it seems reasonable to maintain the status quo — that is, he continues to live there — but with one proviso: He buys you out. You could ask him to do that anyway, but if he can’t afford to, he is relying on your generosity.
In the grand scheme of things, this is a normal rite-of-passage sibling scenario. I have received letters from people whose siblings “borrow” hundreds of thousands of dollars from their parents with no intention of ever repaying them; siblings who hid their father’s will; and parents who were possibly coerced into putting their son’s name on the family home, much to the surprise and consternation of the other family members. The list goes on.
What now? Scenario No. 1: He lives there as a single man, and you don’t ask him to buy you out. That’s pretty decent of you, all things considered — though you are entitled to change your mind, buy him out or ask him to downsize. Scenario No. 2: He starts a family and lives there, and you ask him to buy you out. If he does not have the money, you either sell or you buy him out. That’s fair. Scenario No. 3: You both have families, and the money to buy each other out. You flip a coin.
Oftentimes, leaving our egos and fears and wants aside is the better option. Trying to make a case why we deserve something more than the next person — a bad case of the old “do-re-mi-me-me-me-me” — can lead to more resentment and one-upmanship. It’s not likely to end well. If due to financial or familial reasons you did flip a coin, agree that the end result is the right result, whether either of you likes it or not: Heads you win. Tails you win.
This house should never be more important than your relationship.
You can email The Moneyist with any financial and ethical questions at qfottrell@marketwatch.com, and follow Quentin Fottrell on X, the platform formerly known as Twitter.
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