Value of a detached mother-in-law home on a property as regards estate

Let's say there's the following scenario. A couple who are homeowners and parents of three adult children build a small, one-story detached mother-in-law cottage (500 sq. ft.) with kitchen and bathroom on their existing property. They then sell their main home and the property to the oldest adult child for the fair market value of the home (but not including the cottage, which they spent $200k on). Next, they live there the next 25 years rent-free.

They then pass away, leaving their estate "equally" to the three children. Their estate consists only of cash and investments.

The two youngest children contend that the mother-in-law cottage on the property should be considered as part of the oldest child's inheritance. After all, the oldest adult child only bought the property and the main house. The younger two children believe that if the parents' assets are split three ways between all of them equally, the overall split is unfair, since the oldest child receives a cottage on their property which they do not receive. They point out that the oldest child can rent the unit out to generate income, or if the oldest child sells the property, they would receive a profit over and above the original value paid due to the presence of the additional unit, which they didn't pay for in the original home purchase price.

If they all agree that they should offset this additional gain to the oldest child, what is a fair, scientific way of valuing the extra unit?

 

How can you sell a part of the property - who has title to the property when the original sale was made? Who were property taxes assessed to and insurance? Looks to me like parents sold the cottage in return for having a rent free property while alive (at least from a legal view). Legally, it would appear that oldest child owns everything on property but a good lawyer can easily advise here.