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I know this is a somewhat complicated question. I'm looking for advice based on any experience as to how to structure the arrangement.
We have made the decision and put an offer to purchase a "Family Compound" of sorts - 2 houses on a lot. A family dream for a long time. We are retiring and we have our reasons to wish to be with the grandchildren for the remainder of our time.
Please, I don't want to be talked out of the IDEA or told how foolish we are as we have made up our minds. I WOULD appreciate advice on how to structure the deal.
My Daughter and SiL live in his parents large home with the parents who are away caretaking a camp 6 months of the year, so it's rather workable but not ideal. They can't afford a home right now and have 3 small children. We want to help them and be as close to them as we can be. Both have great jobs. They are not charity cases by ANY means, but it's expensive here and it will be a few years before they can save enough to do this themselves. And this dream of ours for this lifestyle, well, we have to make it happen now.
We will be downsizing into the small house, and our Daughter, Son-in-Law and three Grandchildren in the main house.
Our current house is mortgage free and the agent we are talking to feels it will sell for $900,000 to $1,000,000.
Comps in recent weeks show very high demand and over asking sales in less than 2 weeks.
California east bay - Livermore.
Making an offer on a house at $900,000 - 2 houses on the lot, 2 hours from here.
We have talked to our attorney about how to do the deal and after some discussion of options they have suggested we could do this in the manner I describe below but, I would appreciate hearing from anyone that has done this.
My wife and I will buy the house - in our trusts' name.
There will be a "Contract of Sale" that requires that upon both of our deaths, they purchase the property from our trust at a set price. We will determine that price today based on an agreed percentage of what their investment would have been if we were 2 parties buying per sq.ft. today. $600,000 / $300,000 (33%) is what we are discussing.
During the time we live in the homes they will pay the same % of all costs, such as insurance and utilities. but not pay towards the mortgage.
This Daughter and our Son are the beneficiaries of our estate, IRA's etc, which is in our trust.
This is where I get a little confused. We are going to talk to the attorney again on Monday to clear this up.
Upon our deaths, the contract is triggered. My daughter may choose to:
1- Leave $600,000 of her portion of our estate in the trust essentially writing a check and giving it to her brother.
Our portion of the remaining value that was OURS (the $300,000 - 33%) would then be half hers and half my son's.
2- She can again, choose to use an additional $150,000 of her portion of the estate, or using her own money, write a check to her brother to buy him out, or do nothing, and through our trust, he will live on owning 50% of our portion, ($150,000) the other 50% is still hers. To be distributed to upon any refinance or sale.
3 - Use whatever funds, hers or a combination of her inheritance and her own money, and pay my Son $900,000 to entirely buy him out.
All of this seems fine so far except...
The thing that seems a bit unfair to my Son is that if at the time this event occurs, he may not benefit from the possible sale of the home in the future like my daughter might. Unless he can refuse the buyout or we write this up so he always owns 33% and an appraisal during a refinance or a sale of the home determines his buyout price/proceeds.
I really hope I don't get any negativity here for asking this.
Thanks
No negativity. It's commendable that you want to do this for your kids as long as your trust is owning the property and you are paying the mortgage.
I'm not keen on any of the 3 options. I think they are way too complicated and don't take into consideration that many unforeseen things can happen in the next 30 years that can make a horrible mess of your estate when the time comes.
Not the least of which is that the surviving spouse can redo the trust whichever way he/she wants anyway unless you make the trust irrevocable which is a bad idea because you want some flexibility.
My suggestion is set up the trust so that when the surviving spouse dies the property gets sold and all the money in the estate gets divided between your son and daughter. Clean and simple. No gimmicks. No obligations that either may be unable to fulfill. No hard feelings. No hostility. No disputes. No litigation. It's just money divided equally and each can go buy whatever they want to live in.
No negativity. It's commendable that you want to do this for your kids as long as your trust is owning the property and you are paying the mortgage.
I'm not keen on any of the 3 options. I think they are way too complicated and don't take into consideration that many unforeseen things can happen in the next 30 years that can make a horrible mess of your estate when the time comes.
Not the least of which is that the surviving spouse can redo the trust whichever way he/she wants anyway unless you make the trust irrevocable which is a bad idea because you want some flexibility.
My suggestion is set up the trust so that when the surviving spouse dies the property gets sold and all the money in the estate gets divided between your son and daughter. Clean and simple. No gimmicks. No obligations that either may be unable to fulfill. No hard feelings. No hostility. No disputes. No litigation. It's just money divided equally and each can go buy whatever they want to live in.
I agree with you that the options listed by the OP were complicated and didn't take into consideration many unknowns. Although your suggestion that the property gets sold and proceeds are then equally divided sounds easy enough, what if the daughter doesn't want to sell or leave the property and the brother is unable to buy her out? Property values can change pretty quickly.
I appreciate that reply. Thanks.
The trust would continue to own the home. My daughter would have paid back the loan so to speak. And I'm confident that one of us wont change the trust.... yeah I know..
Your suggestion is simple. but we'd prefer to not force anything on her in the future. Let me think about it here.
We do what you suggest.
I suppose they could get first right of refusal at appraised value by an appraiser agreed to by both and buy the home as third parties from the estate if we did that.
Thanks again..
Your proposal is overly complicated--which means it could become very problematic. I agree with adjusterjack. Just keep it simple. Have your estate be split evenly between your two kids. If your daughter wants to buy the two houses at that time, she can work it out with her brother. Circumstances change. Don't try to lock everything up at this time.
Although your suggestion that the property gets sold and proceeds are then equally divided sounds easy enough, what if the daughter doesn't want to sell or leave the property and the brother is unable to buy her out?
Exactly what I'm talking about. The unforeseeable "what ifs."
After the death of the surviving spouse, the trust instructs the trustee to sell and divide the proceeds. Neither of the beneficiaries get a say. They just get the money.
Keep in mind that your trust is fluid. Hopefully, you and your wife won't die tomorrow and you'll have plenty of opportunities to modify the trust based on changes that occur going forward.
I agree with you that the options listed by the OP were complicated and didn't take into consideration many unknowns. Although your suggestion that the property gets sold and proceeds are then equally divided sounds easy enough, what if the daughter doesn't want to sell or leave the property and the brother is unable to buy her out? Property values can change pretty quickly.
Yes we are thinking that we stipulate that if a demand is made by my Son to get his value, an appraisal is performed, value is based on that, and she has so many days to pay him or the home does get sold.
Exactly what I'm talking about. The unforeseeable "what ifs."
.....
Keep in mind that your trust is fluid. Hopefully, you and your wife won't die tomorrow and you'll have plenty of opportunities to modify the trust based on changes that occur going forward.
This is why we are doing this now, unfortunately we likely won't have "plenty of opportunities".
Your proposal is overly complicated--which means it could become very problematic. I agree with adjusterjack. Just keep it simple. Have your estate be split evenly between your two kids. If your daughter wants to buy the two houses at that time, she can work it out with her brother. Circumstances change. Don't try to lock everything up at this time.
hmm....So have the estate split equally - as it is now.. Including the full value of the property,
and we ignore the % ownership now with my daughter... after we pass, then my Daughter owns 50% and my Son owns 50%. BUT the trust lives on and continues with the house owned by it?
If she wants to buy him out or if he wants his % there has to be a mechanism for him to get that without dispute. I suppose we could leave cash/investments in the trust and not liquidate them on our passing to fund that...She has to forfeit the value to him..
Sorry for the complications...I DO appreciate the help.
You can't overlook possible tax implications on any transaction which is why a trusted cpa and estate attorney is needed.
The thing that keeps popping out at me is that the daughter will have been making a life for herself and her family in the house knowing at any future date, the property will have to be sold disrupting their lives. Not the worse situation in the world since she's doing well having the property for the present time and the proceeds after the sale but also not the best situation for planning for her family's future.
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