Can You Include a Right of First Refusal in Your Estate Plan?

For many families, certain properties hold more than financial value. A family home, cabin, farm, or other piece of real estate may carry generations of memories and sentimental significance. But when it comes time to pass that property to the next generation, family members may have very different ideas about what should happen to it.

One child may want to keep the property in the family, while others have no interest in owning it and would rather see it sold. When a significant portion of an estate's value is tied to real estate, finding a solution that treats everyone fairly can be challenging.

A Right of First Refusal (ROFR) can provide a practical way to address these competing interests while giving a family member an opportunity to retain ownership of an important property.

What is a Right of First Refusal?

A Right of First Refusal gives a designated person the opportunity to purchase a property before it is sold to someone else.

Generally, this right becomes relevant when the property owner decides to sell. Depending on how the agreement is structured, the person holding the right may have the opportunity to match an offer from an outside buyer before the property can be sold.

In estate planning, a plan can also be structured to give a designated family member the first opportunity to buy a property at a price determined through an independent appraisal or another agreed upon method.

The specific terms are important because they determine when the right becomes available, how the purchase price is established, and what happens if the designated person chooses not to purchase the property.

How Can a Right of First Refusal Be Included in an Estate Plan?

There are several ways to establish a Right of First Refusal, and the appropriate approach depends on the family's circumstances.

One option is to include the provision in a will or trust. The document can identify who receives the right, when it becomes available, how the purchase price will be determined, and how much time the designated person has to make a decision.

For example, parents could include a provision giving one child the first opportunity to purchase the family cabin if the property is to be sold following their deaths. If that child declines or cannot complete the purchase, the personal representative or trustee could proceed according to the remaining terms of the estate plan.

Another approach involves creating a separate, legally binding agreement between the property owner and the person receiving the Right of First Refusal.

Unlike a provision in a revocable estate planning document, a separate binding contract may limit the owner's ability to change or revoke the arrangement without the other party's agreement.

Both approaches require careful drafting to ensure the terms are clear and legally enforceable.

Important Considerations Before Granting a Right of First Refusal

Although a Right of First Refusal can help preserve family property, it is important to consider how the arrangement will affect everyone involved.

The purchase price is one of the most significant considerations. Will the designated family member be required to match an outside offer, or will the arrangement establish another method for determining the property's value? If an appraisal is involved, who will select the appraiser and pay for the appraisal?

Timing also matters. The person receiving the right needs sufficient time to arrange financing, but the estate or trust should not be left waiting indefinitely.

Families should also consider what happens if the designated person cannot obtain financing, chooses not to purchase the property, or passes away before exercising the right.

Clearly addressing these questions in advance can help reduce confusion, disagreements, and delays during estate administration.

Planning Ahead Can Help Preserve Your Wishes

Passing property to the next generation is not always as simple as dividing everything equally.

For some families, preserving a particular property is just as important as ensuring that beneficiaries receive a fair inheritance. A carefully structured Right of First Refusal can help balance those priorities.

Whether you own a family home, cabin, farm, or other valuable real estate, discussing your goals with an estate planning attorney can help you determine the best way to transfer that property.

The attorneys at Wagner Oehler can help you explore your options and create an estate plan that reflects your wishes while considering the needs of the people you care about.

Take the Next Step 

If you’re ready to start being proactive about your estate plan and want guidance tailored to your family, assets, and goals, contact Wagner Oehler, Ltd. to get started. 

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