Typical mistakes when transferring property to the next generation
The wealth of most Cypriots (those who still have some) is mainly made up of immovable properties and cash. So, when it’s time for them to transfer this wealth to the next generation, they usually make three important mistakes that have both financial and psychological consequences.
The first mistake when transferring properties to children has to do with the lack of preparation by the parents. That means collection and collating basic information related to a property such as documents, contracts, information about professionals who worked on the property (architect, plumber, electrician). They instantly make things worse for their children, bringing down the value of the property until these issues are resolved.
A second issue we often observe deals with the inheritance of properties that have high maintenance costs, where beneficiaries sometimes catch themselves wondering if their parents were trying to help or make life difficult for them. This is the reason why so many buildings are in decline, since insurance and maintenance costs are significantly higher than the income they generate (if any). Another reason is that, on many occasions, children have neither the time nor the expertise to deal with the management of the property. In the past, parents took over management, probably because it generated part of the family income, or their environment supported them in running all the errands (e.g. dad doing the repairs, mom collecting rents, the housemaid doing the cleaning, the cousin handling the books (?!), etc.). How can their children, though, cope with all these new responsibilities when they are already engaged with their own jobs and projects? This is something we see happening quite often and, at the end of the day, rather than helping them, the inheritance becomes another source of stress, confusion and worries.
A third and equally important issue we have observed has to do with parents reverting to the standard practise of splitting the property into shares, one for each child. While this might seem fair to some parents (actually, this is how they get away from having that difficult conversation with their children), in practise, it causes problems to their children, since they usually have different needs and plans. One child might want to sell because they need cash, while another might want to keep the property and rent it out to generate extra income. We can all appreciate how this practice can stir up disagreements that are not solely related to money. As a result, parents cause friction between their children rather than helping them.
On top of that, there are those situations where parents, or other relatives, decide to transfer their property to their children under…certain conditions. A typical example, “I’ll give you the property, but I never want you to sell because it has always been in our family and it means the world to me.” The…unfortunate beneficiary is charged with an illiquid asset and all the expenses that entails, including a major headache. The progenitor rests blissfully in their grave, trusting that they have helped them financially!
Every parent wants to help their children to improve their economic status. However, on many occasions, they act hastily and without any preparation or rational thought and, as a result, instead of helping the next generation, they wear them out financially and psychologically. A properly structured approach needs to be taken when transferring a property as part of an inheritance, if it is to be a true gift and not an expensive trouble.P.S.: As similar trait is buying plots and houses for their children next to the family house, so they can “keep the family close,” even though the kids are still in kindergarten.