help with estate planning

[QT]

Am helping my elderly other with setting up her estate plan. Before we meet with a lawyer ($$!), my 4 siblings and I need to thrash out a solution to a sticky situation. We all get along great, and want to sort this out without messing up the relationships. I hope to hear your thoughts on what to do!

One sibling runs a business out of a building owned by our mother (previously our deceased Dad's building and place of business). The sibling pays a significantly-reduced rent to my mother (due to relationship, and due to sibling's financial problems).

The sibling uses part of the building, and sublets 3 small rooms within the building to other professionals and collects that sublet money for his own use. For the most part, all expenses to this old and always-failing building (except elec., phone, water, & sewer) are paid for by my mother, including heat, garbage, plowing, plumbing repairs, mowing, carpeting painting in/out, etc.

The sibling feels his livelihood is sustained by being in this arrangement, but the other siblings feel it's pretty dang cushy, and taking advantage of my mother's good will). Sibling feels there's no way to ever afford to buy the building from my mother (or from the rest of us once we all inherit that building). BTW, there's also a rental apartment in the building that our mother collects rent on directly, which is independent of sibling.

Due to inertia and precedence, this arrangement probably will stay as is while our mother is alive. Sibling is feeling defensive that we might want to kick him out in the street soon just to get rid of this building, which isn't at all the case. On the other hand, I think to have this arrangement go on for 20-40 years until we all die is ridiculous. It just all is so focused on this sibling tying up a large percentage of the estate.

So what can we set up in the will (or in an LLC or whatever) to activate after her passing that would let the sibling still work at the space, but not have this enormous asset (building is worth $500K now) tied up only for his benefit? Sibling thinks the net-positive cash flow to our mother (still trying to get a number on that) should be enough to keep us happy once we inherit it. Others of us think that we don't want to have this burdon of a building as an albatross over our own retirement dreams, and would like to have our lump-sum cash share in our own portfolios. Also, other siblings are scared about personal asset liability if we end up owning this together.

Thanks for your help!

QT

 

[John Galt]

Hello QT. Not to be a smartass, but I thank God every day
that I only have one brother and not a deep thinker at that. If you get through this and keep everyone friendly
it will be a major accomplishment IHMO. I wish you good luck.

JG

 

[nwsteve]

QT,
Not sure if this alternative will fit all your criteria but it may stimulate some conversation.
I sit on the Board of a local Chamber that had gotten in the landlord business as the result from previous leadership trying to control rent costs. We had several significant expenses from weather damage as well as vacancy issues that were dragging down our ability to meet our primary purposes as a Chamber.
Our solution was to condo-ize the building. We kept our space and had an investor buy all the rest. It was not too expensive--I am thinking 5k for the legal documents plus some dollars for survey and of sales commission if you list the property.
In your case, your sibling could receive his space as part of his share of the estate and the rest of the building would be sold. Your family may have to invest some upfront dollars to get the property ready for sale but if done right and the property is marketable, you could be able to turn this asset into cash and still give your one sibling his space.
Good Luck
nwsteve

 

[Martha]

Possibilities:

1. Personally, I would sell the building for the best price possible once it is inherited and divide up the money. The brother can use his money to acquire different space or to subsidize higher rent from a new landland.

2. You can do a long term lease with the brother at the low rent. However, this will reduce the value of the building when you try to sell it. How is the brother going to compensate his siblings for this loss in value? Potential buyers are going to be looking at cash flow. A discussion could be had with the estate planning lawyer about doing a long term lease between the mother and brother and then reducing the amount this brother gets under the will because he gets the benefit of a reduced rent lease. The property may also be difficult to market if it is encumbered with a long term lease beneficial to the tenant.

3. Doing the condo as suggested above might work if dividing there was a practical way to divide the building. However, it sounds like your brother has more than 1/5 of the building.

 

[Bob_Smith]

QT, it appears to me that the sibling is sponging off your mother - ultimately at the expense of the other siblings. For the sake of his own self respect, and in the interests of fairness, that shouldn't continue after your mother passes. And it is your sibling's responsibility to fix it. He should step up and do the right thing. Surely he knows what he's doing and the damage it can cause. But he won't step up. He'll force his siblings to make an issue out of it, and there will be hard feelings. I don't have much sympathy for people like that. I'd proceed with suggestion number one that Martha proposed. If you do, don't beat yourself up about it if there are hard feelings. You're in the right on this.

 

[wabmester]

Isn't fairness irrelevant here? What does mom want to do with *her* asset?

 

[Bob_Smith]

No, of course not. Fairness is not irrelevant in this type of situation. It appears per the original post that the mother will split the estate among the children. The concern is that one sibling will push to continue an existing arrangement that will cost the other siblings after the mother is gone. The other siblings are concerned that the bulk of the estate will be tied up for the benefit of one. The other siblings will have a legitimate beef if that occurs.

 

[wabmester]

Lots of assumptions being made here. The assumption I'm making is that if mom has a special relationship with one kid, and she has made special concessions for that kid, then she may want this "imbalance" to continue through perpetuity.

Bob_Smith obviously doesn't like to see the runt of the litter "sponging" off of mom. I don't like to see the sense of entitlement that some kids seem to have when it comes to inheritence.

 

[Bob_Smith]

No need to make assumptions - the original poster laid it out quite clearly. There's nothing stated about the sibling being the "runt of the litter" or having any special needs. Also nothing about a "special relationship". In fact, there is a concern expressed about this sibling "taking advantage" of the mother, and that concern is shared by the other siblings.

Nevertheless, it appears that the mother will split the estate among her children. This poster and his siblings just want the inheritance their mother gives to them. That isn't "entitlement". This poster strikes me as a very responsible, reasonable, thoughtful person. I don't see any "entitlement" in what he/she is saying. Expecting the other siblings to tie up their inheritance for the benefit of one... now would be entitlement!

 

[sgeeeee]

Lots of assumptions being made here.    The assumption I'm making is that if mom has a special relationship with one kid, and she has made special concessions for that kid, then she may want this "imbalance" to continue through perpetuity.

. . .

I kinda read the original post this way too. In fact, I wondered why the 4 siblings were deciding how to deal with the real estate issue before mom even went to an attorney to draft a will. How do they know mom has any intention of leaving the others any part of the building in question? There may be a good answer to this question, but it sounded to me like 3 siblings were trying to decide how to solve a problem that they do not yet own.

 

[indymom]

Based on my experience with hard feelings that can have effects for over a generation, the best way to deal with the situation, if Mom asks, is to divide things up equally, and just say, "That is what Mom wanted." If there are sibs with handicaps that would be different, but that doesn't seem to be the case here. Circumstances to alter cases, of course.

 

[Q_T]

Moral Question: If I can FIRE an a few years and sibling is trying to get out of debt still, should I have a kinder heart and more generous stance on this stuff? Or is it a case of people making there own decisions, and let the chips fall as they may, and stay the hell away from other people's financial debris as much as possible?

Back to the main story: Mom has a will now but it's not specific about property issues, just that we all get everything and it will be split 1/5 all around. It's now very basic and doesn't minimize estate taxes, inheritance/personal taxes, or personal liability in case she becomes incapacitated or when she dies and things go to us.

So we're thinking about improving the will and property transfer arrangement while she's mentally sound, willing, and able to set things up as best as possible, and also before we're hit with the stress and emotions leading up to and after her death. And we're doing it before we meet with an estate lawyer so we don't haggle over even the basics of this problem(s) while we pay him mucho bucks per hour to watch the show.

Once we can figure out roughly what we want to do, then we expect the lawyer to finisse it legally and make it happen. I guess it will have to be a unanimous decision whatever we decide, eh?

BTW, even though the estate is now worth maybe $1.3M (office building, small rental house, primary residence, cash/funds, effects, etc), there probably won't be enough cash after selling all assets but the office building to allow #1 to just buy us out. The office is worth too much compared to the amount of cash #1 (or any of us) will receive. And #1 is really the only one tha wants to hang onto it anyways.


Reality: #1 has had some financially difficult times due to divorce and triple mortgage on his house (ex-wife was nasty money pit - again, this was a case of them making many poor choices over several years of marriage). But he whares blame too; #1 has become somewhat fiscally irresponsible (learned from the ex-wife?) in that he still spends money on fancy dinners and lots of dates (hot to trot?) and trips and lots of music CDs and blah blah blah, but then claims he has to pay off his house and doesn't have anything leftover to ever be able to buy the building. #1 gets defensive and claims there's nothing more he can do to improve savings or charge more to clients or increase the subletting rental fee, etc. I don't buy it, but what do we do about it? With #1's defeatist attitude and actions like this, it will be a tough nut to crack on making him change financially or otherwise.

Condo idea won't work,but maybe Martha M's second idea is a good way to go? I guess rent would have to ratchet over the years up to at least keep pace with all expenses now being paid by our mother. If we all end up owning the building I would hope to have a better, written, expense arrangement on who pays what. If we can't get our lump sums out, at the very least none of us want to get hosed and have this become a net-negative cash flow beast.

Bob Smith - you hit the nail on the head in all your posts. This is the stuff what I need to say in front of everyone when we meet. Though I need to soften up the "sponge" language, though that's what it is. Damn, how do I do it without lots of hard feelings? Is it inevitable?

Entitlement: In all my financial planning for FIRE I have never planned on a dime from Mom's estate (though the reality is my 1/5 share should be about $250K). I guess if there's an entitlement issue I have, it's that we should all share as equitably as possible (it won't be perfect), and not have one person hog the whole thing or torpedo 4 sibling's future plans for the sake of 1 person's stubborness or poor habits to allow a change to the present situation.

Please, keep the ideas coming!

 

[John Galt]

This discussion got me thinking about my situation
again. Less people involved and less money too.
It's gonna be a mess though. Actually though, my family
is kind of messed up already so I guess there is not that much at stake comparitively speaking.



JG

 

[Q_T]

Parents:

Don't buy property for your multiple kids to inherit!!! We all end up having our own lives to live and dreams to follow, and real estate (especially buildings) turns things into a PITA, irregardless of the inheritance windfall.

QT

 

[Bob_Smith]

Bob Smith - you hit the nail on the head in all your posts.  This is the stuff what I need to say in front of everyone when we meet.  Though I need to soften up the "sponge" language, though that's what it is. Damn, how do I do it without lots of hard feelings?  Is it inevitable?

QT, I hear you, and I've been there. And I've seen others go through the same thing after a death in the family. If every sibling would bend over backward to prevent a rift, as you are clearly doing, these problems wouldn't occur. At this point it's in your mother's hands. Since she has already declared her intent that you all share alike, the attorney can just focus on tax and other technical issues. The current arrangement that your sibling has with your mother should be a non-issue in estate planning, unless I'm missing something. Once she passes it may be an issue, but for now I'd probably say nothing.

 

[Martha]

I agree with Bob. Don't even address it now as it is your mother's intent to divide equally. Your brother with his 250,000 share (if that is what it turns out to be) can change locations or pay market rent to a new landlord.

In the book Millionaire Next Door, there was anecdotal information which indicated that wealthier people who let their children make their own way, their own mistakes, without bailing them out, ended up with children who were more independent and did better in the long run. Food for thought.

 

[John Galt]

All of our real estate is titled in my small holding company, which is based in another state, and the real
estate is also in more than one state, but not the state of incorporation. If I drop dead, someone is going to make a bunch of money straightening it all out. I have no problem now keeping all the balls in the air. I am sure it
would be indecipherable to most folks.

JG

 

[Brat]

The 'bunch of money' will likely go to a lawyer. If you think so much of them why not make it simple and just name them in the will?

OK, that was not nice. What I think you should consider is preparing a letter of instruction once a year so the process will be cheaper. Put the letter in a sealed envelope addressed to "executor or conservator".

 

[MooreBonds]

One suggestion - have your mother place a note in the will/trust that if a majority of the owners of the property agree to sell the property, then it will be sold and the proceeds divided up according to the ownership share that each child has.

That way, if the building is in a sad state of disrepair, you could (probably) obtain financing to buy it out from the other siblings at a fair market value (which wouldn't be too high, given the assumed state), then possibly fix it up and resell it....or just dump it again.

OR....if his share is about $250k, and the property is worth $500k, then he would have to pay the other heirs $250k to divide up. If the property is worth that much, he could incorporate for a relatively small amount, obtain ownership of the property, and should be able to obtain financing with a 50% LTV ratio on commercial property.

 

[John Galt]

This is mostly for Brat. I am spending real money right
now with an attorney to (A) make sure my wishes are
carried out after my death, and (B) preserve as much of my meager pile for my heirs as humanly possible.
Even though there is not a lot of money involved
(well, it is a lot to me), after the first meeting the attorney I chose seemed pretty unsure how to proceed.
The main things mucking up the works are being in
my second marriage with 3 kids from my first, and the
involvement of my small corporation which necessarily
will survive me. Selection of an executor was a major
decision, and I'm still not sure if I got the right person.

JG

 

[sgeeeee]

I don't have any advice, but I am curious . . . If the sibling who currently benefits from the real estate is forced to find the money to buy you out or begin to pay a new landlord, how will that effect him? Will he loose his business? his home? suffer a significant loss of lifestyle? . . .

If it were me, those questions would be more important than asking what is fair. I haven't planned my retirement with any inheritance in mind and in the case of my father's death I would be more concerned about my brother's comfort and security than about getting my share.

 

[John Galt]

Hello salaryguru! Now, that is a nice thought and puts
a little different spin on the problem. Like you, I am
not doing any planning which includes inheriting
anything, although that would be nice. Re. your brother's "comfort and security", I wish I felt
that way about my brother. I did once.
Anyway, "fairness" is pretty hard to beat for an outcome
IMHO. Actually achieving it is frequently elusive though.

JG

 

[Q T]

How about this solution?:

Siblings agree to continue present rental agreement with Mom for another 10-12 years (until we are all in or near retirement), even if she dies before then. If Mom dies before then, agree that rental terms can be changed to something more realistic for the market, but still keep it reasonable for the sibling until year 10-12.

At 10-12 years, agree to sell the building to sibling, or if not interested or able, to highest bidder.

This will give the sibling a goal and plenty of time to save money for a buy-out, or to plan on a move to a new rental space. And it gives the other 4 siblings a timeline on which to plan their own futures. It also provides this whole sticky situation with closure at a definite time.

Do you think these decisions need to be unanimous (5/5), or majority (4/5)? Reason I ask is that sibling in question could stall everything and lock up the building equity forever if unanimous is needed, just to get what he wants. I hope that's not how he thinks or acts, but it could happen, I suppose.

QT

 

[Brat]

John- I think we think similarly about estate planning, and an on occasion I get a little mouthly. Hubby and I had an attorney prepare our wills, living trust, medical POAs, and health care directives. Full meal deal. This is not a do-it-youself process as a mistake can complicate the life of our families as they try to deal with our health care needs or passing.

Most of all I want to ease out of this life with a wave and salute, and have whatever is left expended as I direct (and not to the folks who prepared the paperwork).

 

[John Galt]

I agree BRAT, but I don't think I can afford the
"full meal deal". In fact, even now that I am into
having a professional firm this up, in the back of my mind I am still thinking "I could blow this off and let my
heirs spend down what's left to straighten it out."
As it is now, the cost of it is coming out of our day to day
expense money.

JG