An inheritance that could...delay early retirement

[FIREd]

So my dad briefed my sister and me this weekend about his estate and how he was planning on dividing it between the two of us. First, his estate is worth close to $2M which he wants to split in 1/2 between my sister and me.
The problem is that out of the $2M, he has about $400,000 liquid and $1.6M in RE that he mostly inherited from his parents (who inherited it from their parents etc). First my dad resides in Europe so estate taxes are going to be a problem. But here comes the tricky part: he does not want my sister and I to sell any of the RE no matter what situation we might find ourselves in. He does not want us to sign a paper or something, but he wants us to swear we would never do it. Also, because my sister makes a lot less money than I do, he wants to give her most of the liquidities and less of the RE (so that she can pay the estate taxes and property taxes on her share of the RE), and he would give me only RE (so I would have to pay the estate taxes out of my own pocket). Now the kicker: The RE I am bound to inherit cannot be used to generate much cash flow. It's mostly farm land and wood land. The farm land is very valuable because it could be developed immediately (it's in demand, near a road, utility ready...). But since I can't sell it, the only thing I can do is rent it to a local farmer (who can also maintain it for me) but that would not bring nearly enough money to even cover property taxes. The wood land is a bit better in term of cash flow, but I am looking at a break even situation at best for those.
So to summarize, I would have to pay thousands of dollars in property taxes every year on the RE, all of which would have to virtually come from my pocket. In turn I would have to amass a bigger nestegg (and therefore work longer) to cover those extra expenses.
So what to do? I understand why my dad is attached to his land (he is European and where he grew up land is the most important asset you'll ever own). Personally I am not so attached to some of the properties he wants to pass onto me. But I feel like if I swear to him I will never sell the properties, then I must stick to my promise. But at least, after much discussion, I was able to convince him to leave me enough cash to take care of the estate tax, but it is still going to seriously impact my early retirement cash flow.
Have any of you been faced with this situation? and how did you deal with it?

 

[haha]

Very interesting situation. Europe is full of agricultural land, even close to cities. Can you get it down-zoned to agricultural uses and thus cut the land tax? how about an ag exemption, or some kind of nature conservancy. Agricultural commodities are at an all time high; given reasonable taxes you should be able to make a nice profit from this.

Failing this might your father consider a trade for an industrial or commercial building for his farmland?

It would really stink to have to feed a farm for an indefinite period of time- or to feel like a traitor if you found you couldn't do it.

Ha

 

[TromboneAl]

Wow, interesting situation. If you're really never going to sell it, it's not an asset, it's a liability, so just say no.

If he doesn't want it sold because he doesn't want it developed, could you sell it to a land trust?

Have you explained all this to him?

 

[Nords]

So what to do? I understand why my dad is attached to his land (he is European and where he grew up land is the most important asset you'll ever own). Personally I am not so attached to some of the properties he wants to pass onto me. But I feel like if I swear to him I will never sell the properties, then I must stick to my promise. But at least, after much discussion, I was able to convince him to leave me enough cash to take care of the estate tax, but it is still going to seriously impact my early retirement cash flow.
Have any of you been faced with this situation? and how did you deal with it?

For the last 25 years, if my spouse didn't talk to her mother every few weeks then my spouse would feel in danger of "being written out of the will". She'd call my MIL, they'd chat for an hour or so, and then she'd dolefully report to me "OK, I'm back in the will."

My FIL used to make the same joke-- "You guys are in our will, but it's on perforated paper!"

About the time that they [-]put us through hell[/-] decided to move back to the Mainland, spouse and I realized that we have an ER portfolio large enough to support us for the rest of our lives. (Duh.) We no longer need their [-]damn[/-] money. Those "will" jokes aren't funny any more.

So rather than burden yourself with your father's wishes (which clearly do not seem to be your wishes), thank him profusely for thinking of you but tell him that you can't accept his very kind bequest under those conditions. Suggest that if he wants you to be the land's steward that he also bequeath sufficient funds (in trust if necessary) to pay for all taxes, maintenance, and whatever in perpetuity. (This works out to more or less the same thing as a land trust.) Or suggest that he donate the whole thing to your sister or a conservation charity.

At the very least he should add contingency beneficiaries or a disclaimer provision to his will so that you have a choice of disclaiming the bequests in favor of his contingencies.

No matter what he wants, it's only money. And it's not enough to pay for the psychotherapy...

 

[Lusitan]

If you cannot convince him otherwise, there's an easy way to prevent this from delaying FIRE - just refuse the "gift" he is planning to give you. You're under no obligation to accept anyone's property.

Either that, or do whatever you legally can do with the property once you get it. (But the emotional downsides to that may not be very healthy.)

The point is though, that you might not get a $1M gift to help you along the way to FIRE, but surely there is no reason to think that this should in any way delay your reaching FIRE - just say "no thanks". Unless, of course, you were counting on a million dollar inheritance to reach FIRE ...

 

[CuppaJoe]

When my sister was appointed executrix of mom’s will, she approached me and said when the time comes, she didn’t want to have to deal with our brother. My response was very spontaneous and still surprises me: Just have a lawyer deal with him and, besides, what makes you think bro will outlive mom? He didn’t.

Does "I’ll try" work as swearing? I don’t think I would swear to it at all since I have never wanted to own property.

 

[FIREd]

Thanks for all the replies...

Can you get it down-zoned to agricultural uses and thus cut the land tax? how about an ag exemption, or some kind of nature conservancy. Agricultural commodities are at an all time high; given reasonable taxes you should be able to make a nice profit from this.

Failing this might your father consider a trade for an industrial or commercial building for his farmland?

The land has already been down-zoned since 2001. The land is in an area where all new constructions have been frozen until the infrastracture (sewer, water supply...) is fully updated. So right now we can't build on the land, we can just farm it. It is scheduled to be up-zoned again in 2009 when the work is done. When it is up-zoned again the price (and the taxes) should increase about 10 folds. My dad would never trade his land because it has been in the family for generations. As you suggested maybe the thing to do is use the land as it was originally intended: farm it. Corn anyone?

If you're really never going to sell it, it's not an asset, it's a liability

.

That's how I start looking at this whole thing.

So rather than burden yourself with your father's wishes (which clearly do not seem to be your wishes), thank him profusely for thinking of you but tell him that you can't accept his very kind bequest under those conditions. Suggest that if he wants you to be the land's steward that he also bequeath sufficient funds (in trust if necessary) to pay for all taxes, maintenance, and whatever in perpetuity. (This works out to more or less the same thing as a land trust.) Or suggest that he donate the whole thing to your sister or a conservation charity.

Very good suggestions. I particularly like the idea of the land trust (which I have been considering for a while) because right now I don't have any heir and although my father does not want to accept it yet, I don't plan on having any. So if I do inherit the properties, either I will have to pass them along to my sister's kids, or I could create a land trust using the land I inherit and whatever money I have left when I die. The money can be used to pay taxes and maintenance.

The point is though, that you might not get a $1M gift to help you along the way to FIRE, but surely there is no reason to think that this should in any way delay your reaching FIRE - just say "no thanks". Unless, of course, you were counting on a million dollar inheritance to reach FIRE ...

I was not counting on any inheritance to FIRE. I want to do it on my own. Any inheritance would have been gravy.

Does "I’ll try" work as swearing? I don’t think I would swear to it at all since I have never wanted to own property.

Well I guess legally, once the property is mine I can do whatever I want with it no matter what even if I swore not to sell it. But I would feel terrible selling what I promised to take care of. I just want to be honest about it.

 

[Brat]

Perhaps the two of you could sit down with a local attorney to explore his wishes and your concerns. Taxes on the 'gift' may make his desires not feasible. Better he understand that now and explore other options.

This is what has happened to many manor properties in Europe. They are just too much for the heirs to maintain.

 

[Meadbh]

Some years ago there was a case in Ireland in which a farmer left his daughter his entire estate, on condition that she remain single. She challenged the will in court and won. The judge said that no testator could demand that a person surrender a human right as a condition of receiving a bequest.

While your situation is not quite as drastic, it seems to me that if your father leaves you the land, he will have no rights over its disposition after he dies unless he writes that into the will, i.e. bequeaths it to you in trust. Any lawyer who would allow him to draw up a trust that would not benefit you would, IMHO, not be doing a good job.

Paging Martha........

 

[FIREd]

Meadbh, he wants to keep it simple, no lawyer involved, no formal paperwork which would prevent me from legally selling the properties. He just want to make sure he can trust me to carry out his wishes. He understands that once the properties are mine I can legally do whatever I want with them. It's a matter a trust. And also, It is somewhat of a cultural thing. As the first born, my dad sees it as my "responsibility" to take care of the family's land, no matter how "inconvenient" it is. Therefore I cannot just "refuse" the gift. I have to find a way to make it work for me financially so that it does not side track my retirement plans.

Perhaps the two of you could sit down with a local attorney to explore his wishes and your concerns. Taxes on the 'gift' may make his desires not feasible. Better he understand that now and explore other options.
__________________

I think that, after much discussion, he understands the estate tax issue and he will try to set enough cash aside so that it will take care at the very least of the estate tax upon his passing.

This is what has happened to many manor properties in Europe. They are just too much for the heirs to maintain.

It is so true! I know many people who have no choice but sell their properties just to be able to pay the estate taxes. Personally I think that I will have the financial ressources to maintain and pay taxes on the properties, but it could throw a wrench into my FIRE plans unless I find a way to create a positive cash flow from those properties.

 

[Nords]

... because right now I don't have any heir and although my father does not want to accept it yet, I don't plan on having any.
Well I guess legally, once the property is mine I can do whatever I want with it no matter what even if I swore not to sell it. But I would feel terrible selling what I promised to take care of. I just want to be honest about it.

Meadbh, he wants to keep it simple, no lawyer involved, no formal paperwork which would prevent me from legally selling the properties. He just want to make sure he can trust me to carry out his wishes. He understands that once the properties are mine I can legally do whatever I want with them. It's a matter a trust. And also, It is somewhat of a cultural thing. As the first born, my dad sees it as my "responsibility" to take care of the family's land, no matter how "inconvenient" it is. Therefore I cannot just "refuse" the gift. I have to find a way to make it work for me financially so that it does not side track my retirement plans.

Your father sure has a lot of problems, and it looks like he'd rather pass them on to you than to deal with them. Luckily the only way they can become "your" problems is if you agree to accept them.

When people used to warn about the dangers of exchanging money between generations (by gifting or however) without lawyers or paperwork-- just a sense of filial obligation-- I used to say "Yeah, but you gotta know your family and it can work out OK." I knew better.

Well, in the case of our family I was wrong.

Don't take any gifts that have attached strings.

If we give gifts to our kid, we mentally imagine her lighting cigars with $100 bills just to make sure that we have no problem releasing it from our own sense of how it should've been used.

 

[Alex]

hmmm...... in my experience people who have "moved on" to the afterlife have a hard time complaining about things here on earth. Sooooo, IMHO, you can either be honest with your Dad and tell him that you aren't interested in his bequest and give him the reasons why; or tell him what he wants to hear, and sell the land shortly after his death. It is really a matter of conscious. At the end of the day, only you can make the decision. Personally I'd have go with telling the truth and see what happens. You might be surprised. Good luck!

 

[JustCurious]

I agree with those who have said that you should tell your father you cannot agree to his terms, i.e., you cannot swear you will never sell. It is true that legally, if he gives the land to you, after he is dead there is nothing he can do (obviously) to stop you from selling, short of putting it in some type of trust. But if he gives it to you outright, you can do whatever you want with it.

I am NOT suggesting that you swear you will never sell, and then sell after he dies. Legally, you could, but it would be the wrong thing to do, in my opinion. I think you should tell him you cannot swear not to sell, and therefore, you cannot accept.

 

[Nords]

hmmm...... in my experience people who have "moved on" to the afterlife have a hard time complaining about things here on earth. Sooooo, IMHO, you can either be honest with your Dad and tell him that you aren't interested in his bequest and give him the reasons why; or tell him what he wants to hear, and sell the land shortly after his death. It is really a matter of conscious. At the end of the day, only you can make the decision. Personally I'd have go with telling the truth and see what happens. You might be surprised. Good luck!

Family story time.

Spouse's grandparents all emigrated from Russia shortly ahead of the Communists. Due to legal issues with their immigration and the steamship line, they spent a number of years in England litigating their passage to America. Those five years must've seared their cerebral cortexes with a deep mistrust of governments and rules.

Spouse's mother told us that when her father was near death, he became very concerned that his E & H bonds (yeah, the ones that weren't earning any interest) would be confiscated by the American government because he was an immigrant (even though he was an American citizen). He gave them to her (in several grocery bags, packed solid to the top) and insisted that she have the bank change the name on them from his to hers. The bank eventually sent a VP out to the nursing home to make sure that this was what everyone wanted, no coercion, and so on, and then did the deed.

The taxes were almost as horrendous as the paperwork, one $25 bond at a time.

Spouse's mother had argued with him over and over that when he died the bonds would pass to her, the only child, through his will, with zero inheritance taxes. He was sentient & rational but paranoid and just would not accept that the inheritance would work out and he wanted to have them in her name, even if he had to pay the taxes, before he died. So she clamped her lips shut, did as he asked, and he paid all those taxes.

We've been listening to that story for nearly a quarter-century, and at the end of it she always beats herself up again by saying "I should have just put them away in the closet and told him that I took care of it."

So I think it's best to just be up front about what you will and won't do, and don't do anything that your conscience can't live with. He won't care (he won't be around to check) but you will, and in the years to come it might bother you far more than you'd believe possible.

 

[FIREd]

Your father sure has a lot of problems, and it looks like he'd rather pass them on to you than to deal with them

Well my dad is a traditionalist. He's not mean spirited in any ways and we have a great relationship. But for example he believes that I should have children (why? because people do) and if possible a boy so that the family name can survive and our branch of the family tree doesn't die out. I don't care about stuff like that but he does (as did my grand parents). But in the same way, he wants the family land to survive and he sees it as my job to make sure it does. Those are not things people understand easily anymore and some people might even think it is crazy. But my grand mother, in her will, gifted land only to her male grand children so that the land would stay in the family (read blood line). Well the "crazyness" will stop with my sister and me as neither of us are traditionalists...

 

[Brat]

Another option is that you tell your Dad that you appreciate that he has considered both you and your sister in his estate plans, but that you would rather swap places with your sister. I know this is a little petulant, but he is not planning to 'give' your sister the property because he KNOWS that she (and spouse?) would not find the strings acceptable.

No, he is planning to pass the ton of lead to you.

 

[Alex]

."

So I think it's best to just be up front about what you will and won't do, and don't do anything that your conscience can't live with. He won't care (he won't be around to check) but you will, and in the years to come it might bother you far more than you'd believe possible.

Be truthful and have no regrets. That's great advice for any situation.

 

[old woman]

When it is allowable by law can you give people 99 year or longer leases on parts of the lands so they can build buildings paying your land lease payments then have it revert back to your sister's great grand children in 99 years. That way it is always in the family and can self support or throw off some profits. Maybe you could own the buildings and lease them out as net leases so the lease holders pay all the taxes and upkeep on really long leases.

 

[donheff]

How about seeing if he will agree to give you the flexibility to sell portions of the property to cover expenses and administration while retaining the "core" of the property (homestead and surrounding land?) in the family?

 

[FIREd]

donheff,

I think you had a great idea. Most of the lots are contiguous but there are 3 outlying lots. I would like to keep the contiguous lots as a whole but maybe I could sell the outlying lots. I think my dad could go with that since those outlying lots have been added to the estate by my grandfather fairly recently and therefore they have not been in the family for that long. I think that if I sold these lots I could create a kitty that would throw off a nice enough income to cover a good share of the taxes and maintenance costs associated with the rest of the estate. I was thinking that I could also harvest some of the wood land and sell the timber to top off the kitty (I would off course plant new trees to replace the ones that get harvested). Perhaps If I get the estate reclassified as farm land, I could actually end up with a positive cash flow. I will submit the idea to my dad and see what he thinks. Thanks to all of you for your suggestions.

 

[spncity]

If there is not some "middle ground" (such as selling the out-lying lots) that allows you to maintain the land without sacrificing your goals, then he is essentially asking you to give up your life to live his.

 

[CuppaJoe]

This may be off-topic:

A house with a Thomas Church garden was bequeathed to the city in 1999 for public use as a small park and place to rent out for such occasions as receptions and weddings. There was no money given for maintenance so a fund-raising effort was made. Now in 2007 the grounds are open to the public for six hours three days a week and everyone is invited to do volunteer work in the gardens.

Of course taxes have been no problem and curiously the house, fence, garage, etc. has received no graffiti activity.

 

[justin]

I was thinking long term leases, too. 20 years? Maybe agrobusinesses - greenhouses or a nursury might work. Or lease it out for light industrial/warehouse use for 20-50 years, and let the lessees build the improvements.

I also like the idea of selling off pieces of the land in slivers and chunks as necessary to pay the upkeep costs. Or selling what is necessary up front to put into a kitty from which you can pull your "4%" to pay upkeep.

A bigger question is what endgame does your father see? It sounds like there is a significant chance you won't have kids in the future based on your earlier post. Does your father realize that you don't feel duty-bound to have kids? Where will your share of the land go if you have no kids? To your sister and/or her kids (if applicable)?

This does sound like an old-fashioned European notion, although I see this type of thing happening here in the US with old farmland being passed down generation after generation, even if it isn't being put to use.

 

[FIREd]

Or selling what is necessary up front to put into a kitty from which you can pull your "4%" to pay upkeep.

That's the approach I prefer personally because that way I can be upfront with my dad and tell him exactly what I will sell and what I won't.

A bigger question is what endgame does your father see? It sounds like there is a significant chance you won't have kids in the future based on your earlier post. Does your father realize that you don't feel duty-bound to have kids? Where will your share of the land go if you have no kids? To your sister and/or her kids (if applicable)?

I keep telling him I don't want kids, but that does not prevent him from asking almost every week whether or not a "surprise" is on the way. Well he'll figure it out sooner or later. Now what will happen to the land after I pass is a good question. I see 3 options: 1) I leave it to my sister's kids with the kitty and whatever money is left from my estate so that they don't have to worry about paying the taxes and upkeep. 2) Create a land trust and leave the kitty and whatever money is left from my estate to the trust. or 3) Leave the land to my cousin's kids (their great grand father was my grand father so they are part of the bloodline).

option 3) I see as the last resort. I think option 1) is my favorite. At present, my sister's kids are the beneficiary of the estate my wife and I have built on our own. So it seems logical to also leave the land I inherit to them if they want it. If they don't want it then I would go to option 2).

 

[2B]

For the last 25 years, if my spouse didn't talk to her mother every few weeks then my spouse would feel in danger of "being written out of the will". She'd call my MIL, they'd chat for an hour or so, and then she'd dolefully report to me "OK, I'm back in the will."

My FIL used to make the same joke-- "You guys are in our will, but it's on perforated paper!"

About the time that they [-]put us through hell[/-] decided to move back to the Mainland, spouse and I realized that we have an ER portfolio large enough to support us for the rest of our lives. (Duh.) We no longer need their [-]damn[/-] money. Those "will" jokes aren't funny any more.

So rather than burden yourself with your father's wishes (which clearly do not seem to be your wishes), thank him profusely for thinking of you but tell him that you can't accept his very kind bequest under those conditions. Suggest that if he wants you to be the land's steward that he also bequeath sufficient funds (in trust if necessary) to pay for all taxes, maintenance, and whatever in perpetuity. (This works out to more or less the same thing as a land trust.) Or suggest that he donate the whole thing to your sister or a conservation charity.

At the very least he should add contingency beneficiaries or a disclaimer provision to his will so that you have a choice of disclaiming the bequests in favor of his contingencies.

No matter what he wants, it's only money. And it's not enough to pay for the psychotherapy...

I loved Nords response. I think it is a good option but will cause a rift between you and your father.

My thought was to tell him anything he wants to hear and sell it anyway. He dies happy and you get your inheritance without the hassle. The only problem is if your sister fights to "keep it in the family." In which case, do what you can but the ultimate response is to walk away from it and let her pay the taxes. She may be much more agreeable with that prospect. I wouldn't let a piece of dirt I didn't care about dictate my life.

I wouldn't do anything fancy with the property since your father wants to "keep it in the family." If you don't want it, don't take it. If you can't sell it or generate a positive cash flow, it's unnecessary baggage.

When my father got on in years, he became obsessed with our family history and the "family name." Male heirs suddenly became significant. It isn't like we had any massive estate to inherit or title to pass on.