Can an Estate Plan Include a Right of First Refusal on Property?
When a family owns a property with significant financial or emotional value, deciding its future after the owners pass away can be complex. One family member may hope to keep the property in the family, while others might prefer to receive their share of the inheritance in cash or other assets. A right of first refusal (ROFR) can offer a practical way to balance these competing goals.
An ROFR gives a designated person the opportunity to buy a specific property before it is sold to an outside party. This right typically applies only after the owner has decided to sell. In many situations, it is triggered after an independent buyer has submitted a formal offer. The individual holding the right can then choose whether or not to match the terms of that offer and purchase the property.
This approach is particularly helpful when a parent wishes to treat their children equally while still giving one child a meaningful opportunity to preserve a family home, farm, business, or other important asset.
The following example illustrates how an ROFR works in practice. It also highlights several key issues families should carefully consider before including one in their estate plan.
A Right of First Refusal Example: The Family Farm
Allen and Betsy have owned and operated a farm for decades. As they have aged, their youngest child, Chet, has stepped in to help them manage the daily operations. Over time, Chet has grown deeply attached to the property and strongly desires to keep it in the family after his parents pass away. His two siblings, however, have expressed no interest in owning the land or participating in the farm’s management.
Allen and Betsy want their three children to receive equal shares of their estate. The challenge is that the farm accounts for more than half the value of their total assets. Consequently, it is nearly impossible to simply allocate the farm to Chet as his one-third inheritance without heavily shortchanging his siblings. Under normal circumstances, the farm would probably need to be sold so the proceeds could be easily and equally divided among all three children.
A practical solution to this dilemma is for Allen and Betsy to grant Chet an ROFR. Such an arrangement provides Chet with a formal opportunity to purchase the farm after his parents pass away. If the property is prepared for sale, Chet can step forward and buy it, provided he meets the specific requirements outlined in the ROFR.
Arrangements like this raise practical questions for the family members who eventually carry them out, so having accessible guidance matters. One client who managed trustee obligations shared:
“Brent Gunderson assisted us with managing our estate trustee obligations and we found him and his staff to be highly professional and helpful in offering sound legal advice throughout the process. He was always willing to take my phone calls and answer all my questions with full satisfaction on my part. I would recommend Brent and his firm to anyone wanting very competent and steady legal representation.”
Todd Stewart, Google Review
Adding a Right of First Refusal to a Will or Living Trust
There are multiple ways Allen and Betsy could structure an ROFR for Chet. The most common approach involves their estate planning attorney drafting an ROFR provision directly into their wills or living trust documents.
Instead of requiring the estate to list the property and wait for an outside buyer, this provision can give Chet the exclusive first option to purchase the farm before it ever goes on the open market. The planning documents can spell out exactly how much time Chet has to exercise this right after his parents pass away. They can also establish exactly how the purchase price will be determined, such as by relying on an independent professional appraisal, rather than forcing the family to wait and match a third-party offer.
This proactive approach provides clarity for everyone involved. The siblings are reassured that the property is being fairly valued based on the predetermined method. It also prevents the estate from addressing contingencies or extended closing dates that often accompany outside offers. Most importantly, it guarantees Chet a meaningful opportunity to secure the property he values so deeply.
If Chet decides against exercising his ROFR within the allotted timeframe, he is not locked into any financial obligation. He can simply allow his right to expire or officially waive it. At that point, the executor can list the farm for sale to the general public. Regardless of his decision, Chet will receive his full one-third share of his parents’ estate.
A significant advantage of placing the ROFR in a will or a revocable living trust is the flexibility it provides. Allen and Betsy retain the ability to modify or remove the provision while they are alive and have legal capacity. To avoid future confusion, the planning documents should always specify whether the right can be amended and exactly how those changes must be executed.
Provisions like an ROFR are often built into a family trust, and careful drafting is what makes them work as intended. One client said:
“If you’re looking for expert assistance with a Family Trust, even complex ones, this is the firm to talk to. Highly recommend them.”
Rich Crandall, Google Review
Creating a Right of First Refusal Through a Separate Contract
The second approach involves creating a separate, legally binding agreement between Chet and his parents. This contract would clearly outline when Chet could exercise his right and exactly how much time he would have to make a decision. Just like the estate planning documents, this agreement can dictate whether Chet must match a third-party offer or has the initial option to purchase the property at a predetermined value, such as a formal appraisal.
Depending on state law, the family may also be able to record a notice or memorandum in the county land records. This public notice alerts any prospective buyers that Chet holds certain preemptive rights that must be addressed before the property can be sold. Because these recording requirements vary widely by state, proper legal guidance is essential.
Unlike a will or a revocable living trust, a separate contract provides greater certainty for the beneficiary. Allen and Betsy could not simply change or revoke the agreement without facing the legal consequences of breaking a contract. However, a contract does not guarantee that Chet will ultimately buy the farm. He must still fulfill all the agreement’s requirements and secure the necessary funding to successfully complete the purchase.
Family property and contract arrangements often play out over many years, which is why ongoing support matters. One family we have worked with for a long time shared this experience:
“Brent Gunderson and Gunderson Law Group have helped our family with estate planning, setting up trusts, partnerships and other business entities for many years. These services have been excellent in every way. We needed Brent’s help recently when the payer on a note we held stopped making payments. Brent worked with us, the payer and the note payment company to quickly bring the payments current. I highly recommend Gunderson Law Group.”
Mark Ellsworth, Google Review
Right of First Refusal FAQs
What is a right of first refusal in an estate plan?
A right of first refusal (ROFR) gives a designated person the opportunity to buy a specific property before it is sold to an outside party. In an estate plan, it is often used to give one family member a fair chance to keep a home, farm, or business while the other heirs still receive equal shares.
Can a right of first refusal be included in a will or trust?
Yes. An estate planning attorney can draft an ROFR provision directly into a will or living trust. The documents can spell out how long the holder has to act and how the purchase price will be determined, such as by an independent professional appraisal.
How is the purchase price set under a right of first refusal?
It depends on the terms. The right may require the holder to match a third-party offer, or it may give the holder the first option to buy at a predetermined value, such as a formal appraisal, before the property goes on the open market.
What happens if the holder decides not to buy the property?
The holder can let the right expire or waive it. The executor can then list the property for sale to the public, and the holder still receives his or her full share of the estate. Learn more about selling a deceased loved one’s property.
Can a right of first refusal be changed later?
If it is in a will or revocable living trust, the owners can generally modify or remove it while they are alive and have legal capacity. A separate contract offers more certainty for the holder, because the owners cannot simply change or revoke it without the legal consequences of breaking a contract.
Get Legal Help With a Right of First Refusal
Whether they are included in a will or trust or created through a separate contract, ROFRs must be carefully drafted. The rules vary by state and by the type of property involved. An experienced attorney in the state where the property is located can explain how the right should be created, documented, recorded, and enforced.
Contact us to discuss how we can leave your hard-earned money and property to those you care about and in the way you want.
