Yet Another Estate Question

In My Humble Opinion
1

My wife’s 87 year-old father died about a year ago without writing a will. Of course there are complications, such as an estranged wife who was still legally married to him, a pseudo-hoarded house and farm lot, seven siblings who don’t speak with each other, and a small hardscrabble farm that’s close to being annexed by the city and has development potential in a few years.

One of the siblings has a lawyer who has arranged for that brother to be co-executor (actually, personal representative), along with the estranged wife. His lawyer wrote up an agreement that the estranged wife will give up her rights under (Minnesota) state law in exchange for a cash payment from the estate, which just leaves the seven siblings to work the farm property itself. The sibling with the lawyer would then become the sole administrator. Everyone agrees that that is fine.

Included in the lawyer’s paperwork that my wife is supposed to sign is some worrisome wording, which is the question I want to discuss, with the part in question in bold:

Blockquote
I (the other siblings) waive any right to object to the inventory, check ledger, deeds (etc.) I also waive further notice of and right to participate in a hearing to consider and approve the administration of the estate.

To me that seems like the brother who would become the sole administrator would be given free-rein to do whatever he wants with the estate. For example, could he sell the farm to one of his friends for $7 and give each sibling one dollar? Doesn’t being executor have an fiduciary responsibility to the other parties (his siblings)? How can that be enforced if the siblings can’t participate any hearings?

And of course, that’s the brother that really wants the farm, while everyone else wants to just sell the place and divide the proceeds (about $70,000, so nothing major). He’s not a farmer; he just wants a place to play with on a four-wheeler and park an RV (the farmhouse is unlivable). He thinks that the rent being paid by a neighbor for the land is enough to pay off the taxes on the farm, because he doesn’t have any real income or savings or credit worthiness. And none of the other siblings really need the money or the farm!

This is long enough, but it seems to me that a mediator between the siblings is needed, but I can’t say much to the rest of her family. Thoughts on potential problems here?

2

Your wife should consult with an estate attorney before signing anything.

I’m not positive, but the bolded part might just be saying that you waive your right to the hearing to appoint the administrator. That is, the hearing where the judge says “Soandso, you are appointed to be the administrator”.

I’m concerned about waving your right to object to the inventory. That sounds like you wouldn’t be able to object if he said there were no assets in the estate.

He shouldn’t be able to keep the property if the other’s don’t agree. The distribution should be that the estate is divided equally between the siblings. If the estate is worth $70k, then each sibling should get $10k of value from the estate. That could be in cash, but it could also be in items taken from the estate or being added to the deed.

One way to handle if some siblings want to keep the farm and others don’t is that the siblings that don’t get bought out for $10k from the estate or the other siblings. The siblings which want to keep the farm would be listed on the deed.

(Can you clarify something about the siblings. Are these siblings of the father or siblings of your wife? I’m assuming the siblings you mention are children of the father.)

3

I would think that agreeing to a 3rd party appraisal to value the estate might need to factor into this.

4

Some siblings fought over my Grandmother’s estate, and the attorneys literally wound up with all the money. Even the would be screwers got screwed. In retrospect the other side should have caved and been happy with smaller amounts.

5

Yes, they are children of his first marriage, which ended in divorce. He actually had divorce papers for the second wife on his kitchen table, ready to be signed, but he never bothered to do so. Sigh.

The farm is assessed at $500,000 but none of the brothers have the funds to buy anyone out. (But we could! But we don’t want to)

One of the sisters called the brother’s lawyer, who rightly refused to talk with her. Perhaps another lawyer needs to look the agreements over again. For now we’re just sitting on the paperwork.

6

Is the plan to sell the farm, or are six heirs really considering giving up their share of a $500K estate so one person with no real income or savings or credit worthiness has a place to ride an ATV? It’s not clear that is the case, but that’s my interpretation of the OP.

7

$500k is a good sized estate. If they hang onto the farm, make sure it’s put into a trust rather than doing something like putting everyone’s name on the deed. But given the complications of the relationships, it would probably be best to just sell it and split the proceeds. Managing shared property between 7 siblings who don’t get along will be a headache of epic proportions. It’s going to be challenging just to get the siblings to agree on whether to keep or sell it in the first place. Perhaps it would be best to just put it up to a binding vote where the siblings can each say their preference and the majority wins.

8

Again, it’s not clear, but is this already in probate court under the rules of intestacy? I would feel more comfortable with the brother’s lawyer if I knew his actions were under the eye of a probate judge.

9

The intestate judge appointed both the estranged wife and the youngest son (from the first wife) as joint personal representatives. He was simply the first to contact a lawyer. With the buyout of the second wife, we think that the son gets to be sole representative, but also worry that he would make decisions that benefit only himself.

Yes, that son would like his siblings to sign their portions directly to him (which raises questions, such as can they give him their share, or does it go back into the estate). He even asked the others that wouldn’t it be great to keep the farm in the family, even though no one farms. Initially half were ready to give up their shares, but are now having second thoughts.

My wife would like to sell it, but carve out the 15 acres (1/7th) that the son could call his own. She’s getting more of the siblings to see the merits of that.

10

Thanks for clarifying.

Just throwing this out there because it is something that I am considering myself - is the farmland suitable to lease out to a solar company for a solar panel farm? Then they can split the income seven ways. Probably have to form a family LLC or trust, but two goals are achieved, the farm stays in the family, and it produces income for all the owners.

11

I’m be wondering about future development. If the city re-zones the land from agricultural to commercial building, or residentlal building, the value of the land could skyrocket to many,many times its current appraisal.

Despite all the non-cooperation and bad feelings , it might be worth it to convince everybody to let the land sit, leased or not, for a few years. Then have it re-appraised and split evenly between them.

.

Despite

12

If the other siblings want out, then the shares should go to the estate. So rather than being split 7 ways, it would be split 6 ways or whatever. There’s no reason for him personally to get someone’s share. If the shares are assigned directly to him and he manages to get 4/7th of the shares, he then has a controlling interest and can pretty much do what he wants with it. It doesn’t make sense for the other siblings to give him their share rather than the shares going to the estate. If he’s angling to get the shares assigned to himself, he’s not really acting as a neutral administrator in the best interests of the estate.

If the siblings want to keep the farm in the family, they should put the farm in a trust with the siblings as the trust beneficiaries. That way everyone keeps their shares and the family still controls the farm.

13

Just looking, it seems like a 1/7th share of a $500,000 estate is worth about $71,400. So ‘giving away’ a share, then there are tax implications.

If any sibling gives their share to this one brother, then won’t:

  • they owe gift tax on $54,400 (after the $17,000 exclusion)
  • the recipient has to report the entire $71,400 as income & pay tax on it.
    If he has no credit or other significant income, the tax bill on 4 shares ($285,600) would probably force him to sell at least a part of the land to pay it.
14

Not, I think, if you just disclaim the inheritance. Then you technically never receive anything and owe taxes on nothing.

15

Thanks for all the advice so far. The question of disclaiming has obviously been misconstrued by the siblings. A couple of them think they can disclaim their portion and designate that their share goes to the one brother. From the quoted site, it looks that the property would go to the disclaimer’s progeny. One sister expressed an interest in disclaiming, but she had children and grandchildren, all of whom would need to disclaim it seems. Another brother has no wife or descendants, so in that case it appears that their portion would go back to the entire estate, and cannot be designated to the other brother.

That all appears to be moot, since more than nine months have passed since the father’s death.

If disclaiming is no longer on option, and they’d like to give their share to the other brother (who is the one who wants the farm) then it appears that there would be considerable tax consequences.

I’m going to push for the farm to be sold and the proceeds to be equally divided, or the farm split to give the brother his share to live on, and sell the remainder. The other option would be to set up a trust as recommended here.

Obviously the siblings need to meet with an estate advisor and come to an acceptable agreement. I’m unclear on what kind of professional that is (how do we find one).

16

Not necessarily, I think in your case it would depend on the intestate succession in the state in question. But as you say probably moot if they’ve waited too long to work it out.

17

Even assuming that this was considered a gift, this is mostly not true. While they would have to file a gift tax return in theory upon giving a gift of that size, they would probably not owe any tax because of the larger lifetime exclusion that’s around $6 million or something like that. I don’t think any of the people in this story have given away that much money in their life so far, nor will they. Since it’s unlikely that they’ll ever owe gift tax, it makes it reasonable to not bother filing a gift tax return at all; you can only be penalized as a percentage of the tax you owe for failure to file and pay. I can’t recommend doing that, as you don’t know what your life might bring in the future, but that’s the option most of our clients take when we tell them about their options after they say yes to the “Have you given any gifts over X amount to someone this last year?” question on the yearly questionnaire.

Secondly, gifts that are subject to gift tax are not income to the recipient. While it’s true that the tax authorities can go after the recipient for unpaid gift tax due from the donor, that doesn’t make the gift taxable to the recipient. If you point to things like people owing taxes after being given cars by Oprah, those aren’t gifts in the same sense. Those are promotional payments-in-kind and are a business expense of Oprah’s production company, not a gift for tax purposes.

18

The brother who wants the hobby farm, should go get a loan and buy out the other siblings, then he can go and do with it whatever he wants.