Skills For Success
July/August 2003
How to Create a Consensus on Family Land Use and Distribution
When large and valuable parcels of land pass from one generation to the next, they often carry with them unresolved problems. Some heirs may wish to preserve the land in the family, while others may wish to dedicate the land for conservation. Still others may wish to develop all or some portion of the property, and others may wish to change its productive use. Often the land represents a substantial percentage of the inherited wealth, and some of it may need to be sold to pay debts, provide liquidity, or pay taxes. To resolve their conflicts over land issues, family members need to arrive at a consensus. Below are four basic steps, and the skills necessary to facilitate consensus-building.
Step 1. Get Started Today!
It is never too early to begin thinking about what you want to do with your family land. The first and most important step in this process is to get started; the longer you delay, the more opportunities arise for misunderstandings and future mismanagement of your land. Block out some quiet time, put pen to paper, and honestly assess what you want to do with the land. Ask yourself: “What does this land mean to me? Who do I want to pass it on to and what do I want done with it?” Consider your needs for and from the land while you are living.(Retirement? A second source of income?) Then consider your surviving family’s wants or needs for the land and how those requirements might mesh or conflict with your goals.
Step 2. The Family Meeting
Once you have a clear understanding of what your land means to you and what you would like to see happen to it—for present and future generations—it is time to reach out to your family about the land. In order for a consensus to occur, family members need to be willing to meet in order to resolve whatever their land issues are.
A) Broach the Issue and Establish Interest Levels
With younger children who have not yet reached autonomy, be careful how you broach the topic. Try using non-threatening “what if ” statements such as: “If I were to die, this is what I would want done with the land.” Let your sentiments be known and gauge their responses. With older children who are financially independent of you, or for spouses, siblings, or other non-dependent family members, it is possible to be more straightforward: “I am devising a plan for what I would like done with my property after I die. This is what I am thinking. What are your thoughts about this?” Any level of this process would be aided by the presence of a facilitator.
B) Schedule the Meetings/Set Your Expectations
The process of reaching a consensus usually requires a series of family meetings over a period of time. The length of time will vary according to the complexities of issues in dispute, the personal dynamics among family members, and the rapidity with which an agreement can be reached. Intervals between meetings give family members an opportunity to do their homework, which includes meeting with individual attorneys, accountants, spouses, and heirs, as well as allowing time for environmental studies, appraisals, surveys, etc. An effective meeting schedule is every two to three months over the course of a year. This timetable allows an appropriate break between meetings while maintaining a frequency necessary to decision-making momentum within the group. It is important that you and your family set your expectations from the beginning—this is a process that takes time, patience, and intelligent compromise. Good consensus building doesn’t happen overnight.
C) Hire a Facilitator/Mediator
Based on my professional and personal experience, I know that families reach more thoughtful, solid decisions about the future of their lands when their sessions are professionally facilitated/mediated. While the roles of a facilitator and a mediator are similar, they are not the same. A facilitator organizes and focuses meetings,lays the ground rules, and makes sure that everyone is heard in an orderly fashion. He/she treats members of the group with an evenhanded respect, listens, gives active feedback, and recognizes all participant while maintaining impartiality. A mediator has all of the facilitator’s skills, but also is skilled at helping family members to: solve problems, empathize with different viewpoints, arrive at conflict resolution, help everyone reach a consensus, achieve a fair and equitable balance, create a sense of harmony in conflict resolution, and preserve and actually strengthen family ties. Especially in highly complex situations where there is a wide disparity of viewpoints, a mediator is often essential to achieve consensus. To locate a facilitator or mediator near you, contact: Association for Conflict Resolution (ACR) at 202-464-9700 or via their website at www.acresolution.org. To learn more about the process of consensus building, read: Getting To Yes: Negotiating Agreement Without Giving In by Roger Fisher and William Ury (Houghton Mifflin Co.) and Getting Together: Building Relationships As We Negotiate, also by Fisher and Ury (Penguin Press).
Step 3. Formalizing the Consensus
Any and all agreements must be formalized in writing via legal documentation. Once a consensus has been reached, it’s time to meet with a financial planner (if the land is a large estate, an attorney specializing in estate planning would be best). These experts can offer options for best achieving your objectives. They also may be able to devise creative strategies for land use and distribution. For a list of some excellent resources for learning more about these options, please see the box in this section.
- Gifting
Begin gifting portions of the land during your lifetime. It is often a wise financial decision and it is a way to mentor. Gifting parcels of land to family members helps to invest them in the welfare of the land and teaches them how to care for and value property. (Gift carefully and make sure family member recipients are able to afford the additional taxes and money for upkeep if applicable. Your financial advisor will help you devise a plan for gifting appropriately.) Gifting land to conservation groups or charitable organizations is also a wonderful way to “pass on” what you have gained through land ownership — plus, gifting in this manner provides an important tax savings during a time in your life when you are seeking to pare down, rather than add to, your expenses.
- Conservation Easements
An essential way to protect land use when gifting is to include a conservation easement. This legal agreement enables a landowner to voluntarily restrict the type and amount of development that may take place on his/her property. Each easement’s restrictions are tailored to the particular property, the interest of the owner, and the resources being protected.
- Family Limited Partnerships and Trusts
These two vehicles help families build lasting and intelligent land use agreements by treating the land almost as if it were a family-owned company divided into stockholder shares with money invested for its continued prosperity.
- Clauses for Future Generations
It is imperative to keep future generations in mind when crafting your current land distribution agreement. (If the consensus you are building now applies to your children, it is important to consider its impact on their children and their children’s children). A good financial planner or estate attorney will help you address these issues by structuring your agreement to include aspects such as endowment funds (monies invested and earmarked exclusively for ongoing property maintenance and repair) and “buy out” clauses. A “buy out” clause gives each family member the option to buy out another should one family member seek to sell his/her portion of the land. This arrangement alleviates excessive financial burden and also increases the likelihood that the property will remain intact and in the family.
Step 4. Keep It Current
Your plans should be evaluated every three to five years since relevant tax and estate laws often change. In addition, evolving family situations may impact the structure of your land distribution plan, making regular assessments of this plan imperative. Keep in mind that estate taxes and federal income taxes fall under federal control and are “universal,” but certain tax laws and other relevant legislation that might apply to your particular situation are decided at the state level. For this reason, it is important that you and your financial advisor are aware of the most current federal and state laws. As with most things in life, the most important components of successful (and peaceful) family land distribution are clear communication and planning.