Many families own a place that means more than its appraisal. A house at Lake Tahoe where every summer happened. The home the children grew up in. A building that has housed the family business for thirty years.
When the plan for that place is made thoughtfully, it can do two things at once. It can give the child who hopes to keep the property a real opportunity to do so, and it can make sure every child still receives an equal share. A right of first refusal is one of the tools that makes that combination possible.
What the right does
A right of first refusal gives a named person the first opportunity to buy a specific property before it is offered to anyone else. In estate planning, the right is usually built into the trust and becomes available after the owners’ deaths.
Consider a couple whose Tahoe house represents more than half of their estate. Their youngest son has spent every summer there and hopes to keep it. Their two daughters love the house but have no interest in owning or maintaining it. The parents want all three children to share equally.
Giving the house to their son outright would leave his sisters with considerably less. Selling it on the open market would treat everyone equally and let the house leave the family. A right of first refusal offers a third path. The son can buy the house from the trust at a price set by the plan, the purchase price becomes part of the estate divided among all three children, and each child receives the same share.
If he decides not to buy, he simply lets the right lapse. The trustee can then sell the property, and he still receives his full one-third share.
The design choices inside the provision
A right of first refusal works well when the plan answers its practical questions in advance. The most important ones tend to be these.
How the price is set. A right of first refusal can be structured to match an outside offer, or to give the holder the first opportunity at a price determined another way. In a family setting, an independent appraisal is often the cleaner choice. It does not require the property to be listed, it avoids the contingencies that come with outside offers, and it gives the other children confidence that the price is fair. The plan can also specify who selects the appraiser and what happens if more than one appraisal is obtained.
How long the holder has to decide. A defined window to exercise the right, and a separate window to complete the purchase, lets the holder arrange financing without leaving the administration open-ended.
How the purchase can be funded. A plan can allow the purchasing child to apply his own share of the estate toward the price, so that only the difference needs to be financed. For a property that represents a large portion of the estate, that provision can be what makes the right usable.
What happens if more than one child is interested. Families change over time. A sibling who has no interest today may feel differently in twenty years. The provision can say whose right comes first, or how competing interest is resolved.
When the buyer is also the trustee
This is the element that is easy to miss.
The child who hopes to keep the property is often the same child named as successor trustee, especially when he is the one most involved with it. Under California law, a trustee has a duty not to deal with trust property for the trustee’s own profit or to take part in a transaction in which the trustee has an interest adverse to the beneficiaries. A trustee selling trust property to himself falls within the scope of that duty.
A trustee administers the trust according to its terms, so the plan can address this directly. It can expressly authorize the purchase and set the pricing method, so the trustee is following the plan’s instructions rather than resolving a conflict on his own. Or it can appoint an independent co-trustee to handle that one transaction. Either approach lets the right do its job and lets the family see that the process was fair.
Trust provision or separate agreement
In estate planning, a right of first refusal is often built into the trust itself. That approach keeps the provision flexible: while the parents are living and have capacity, they can revise or remove it as circumstances change. The trust can also state how any change must be made, which avoids questions later.
Some families instead create a separate written agreement between the parents and the child. A contract offers the child more certainty, because the parents cannot change it unilaterally the way they could revise their trust. It also gives the parents less room to adjust if circumstances shift. Whether a notice of that kind of agreement can or should be recorded against the property depends on the property and the agreement, and it is a question to settle when the agreement is drafted.
The right choice depends on what the family most wants to protect: flexibility for the parents, or certainty for the child.
Two considerations beyond the provision
Property in another state or country. Real property is generally governed by the law of the place where it sits. If the family property is outside California, the provision should be designed with that jurisdiction’s rules in view, often in coordination with counsel there.
Property tax. Under Proposition 19, whether a transfer of California real property between parents and children is excluded from reassessment depends on how the property is used afterward, among other conditions. A vacation home and a family residence can be treated quite differently. This is worth working through with a tax advisor while the provision is being designed.
Designing it early
A right of first refusal is a modest provision with an outsized effect. It lets a family keep the place that holds its history without asking any child to accept less, and it settles in advance the questions that would otherwise be left to the people carrying out the plan.
That kind of provision is most useful when it is designed with the specific property, the specific children, and the specific trustee in mind.
Is there a place your family hopes to keep?
The Law Office of Janet L. Brewer works with individuals and families whose circumstances have more to consider than the surface suggests. Every engagement begins with a Right Fit Conversation — a focused, paid discussion in which your situation and the practice are evaluated together. If it is a fit, you will know what comes next. If it is not, we will tell you honestly, and often point you toward an attorney who is a better match.
Call the office at (650) 325-8276 or visit https://www.calprobate.com/contact-us/ to begin.
This article is for general informational purposes only and is not legal or tax advice. Reading it does not create an attorney-client relationship.
