Inheritances and marriage

[raeoflyte]

I'm inheriting an portion of an out of state income producing property (family farm).  It's high value but relatively low income--about $5000 to $7500 a year expected.  The intent has always been that it stay in the family, so passed down to children and ownership does not pass to spouses.  From reading threads here, it seems like that is easier said than done.  I am shopping for a lawyer to do a trust and will discuss with him/her as well, but wanted your input.  

My understanding is that the inheritance is not viewed as sole and separate if the funds are mingled in joint finances. Is that a correct assumption, and if so, does that apply to the annual income received?  Can I use that income towards my education and/or put that income in accounts for the kids without it being joint funds?  

I'm not worried about dh and I divorcing, or about him trying to sue me for ownership, but these things always go better if things are set up correctly upfront.  

[sesfw]

Definitely see an attorney to get things in writing according to where you live.

I have a friend who owns 1/32 of a family farm ...... passed down through a couple of generations.  And she has 2 adult children who will probably never have kids.  The potential for a mess is there.

My SIL inherited part of her family farm (1/9) and all the siblings sold their shares to one brother.  Stayed in the family and will go down through his line.  Worked out well for all concerned.

[busymom]

In our state, I was told to set up a separate account in my name only. But, as has already been mentioned, I'd speak to an attorney first.

[haapai]

You'll definitely want to get together with the other heirs and talk about your plans for the property to remain in the family and possibly hammer out or agree upon a mechanism for keeping it in the family or not.   A lot depends on the number of heirs, how many kids they have, how well they are doing financially, and how much the property is likely to net. 

This could get very ugly if there are a lot of heirs and the families are not similar, or if they differ in their ability to contribute to the maintenance and upkeep of the property or oversee the finances.

Things could get very nasty if the net is smaller than you expect, which happens frequently when properties change ownership, or if there are any circumstances under which heirs could be asked to contribute money toward repairs. 

Sometimes it's best to just sell the property outright or allow one family member to buy out the rest. 

[phil5185]

My SIL inherited part of her family farm (1/9) and all the siblings sold their shares to one brother. Stayed in the family and will go down through his line. Worked out well for all concerned.

Good method - the magazine "Successful Farming" has a section dedicated to 'farm succession' in every issue - That magazine has been around for over 60 yrs that I'm personally aware of - so that gives you an idea how contentious that question is.

The 3rd gen can easily be 25 or 30 young adults - and it is a near-certainty that one or more of them will need their share (a young woman's dh is out of work and needs a new car to drive to job hunts?).  All legally binding contracts (trusts) have cancellation provisions for death, divorce, desires - and everyone has the legal right to take what is theirs.   IMO, it is better to keep the headcount low by consolidating the ownership at each generation.

[raeoflyte]

Definitely good points, but at this point our situation is as simple as any of these things can be. Mom is inheriting 100% of the property and is disclaiming a portion to my sister and I. Sis isn't married, doesn't have kids and plans to leave everything (not just the farm) to my kids. We all get along, already have comingled finances and properties together.

[Happy prose]

I have one daughter, who is getting married next year. Does this mean if I die, what she inherits from me becomes half his?

[skubikky]

Sept 19, 2016 12:29:48 GMT -5 Happy prose said:

I have one daughter, who is getting married next year. Does this mean if I die, what she inherits from me becomes half his?

My understanding is, as was said above, if she co-mingles her inherited assets with her DH, yes.

In order to best answer these questions and be provided with options and explanations, please seek the advice of an estate lawyer.
Also, of your DD will reside in another state from you, one would want to be made aware of the inheritance/divorce guidelines in that state.

[haapai]

Swamp, you might know the answer to this.  If rae uses marital funds (wrong word, I know) to maintain, repair, or improve the property, has she comingled it? 

ETA:   What if rae got income from the property for years and always deposited in a separate, non-joint account, but also took money out of the account occasionally.  If the property then required an infusion of mooulah that exceeded the amount in the separate account, would the property have become comingled? 

[raeoflyte]

Sept 19, 2016 13:24:34 GMT -5 @anne81 said:

Yup, call a lawyer.

That being said DH inherited partnerships that own farm and other commercial real estate assets.  The partnership paperwork states that it must remain in the family and that the partners are limited, except for whoever gets the general partnership piece.  Because the person who inherits it doesn't have control and can only sell to family it sells at a steep discount to land value.  When DH's uncle died he left his share to charities, who sold it to us at the discounted rate. We had to get a commercial appraisal and agree on the terms, which was expensive and took a few years.

Technically I can't own the partnerships but I do, through our trust where I'm a trustee.  I'm also a general partner in the partnerships so even though it's inherited and the paperwork says I can't own it the lawyer says it's half mine.

So it really depends on the entirety of your legal situation. 

I'm sure I'm explaining this wrong somehow.

I don't think you're explaining it wrong, but this just points out to me how completely clueless and uneducated I am.  

[haapai]

Sept 19, 2016 13:53:09 GMT -5 raeoflyte said:

I don't think you're explaining it wrong, but this just points out to me how completely clueless and uneducated I am.  

There's no need for that kind of auto-flaggelation.  Not many folks outside of the trustafarian class know this stuff, and most of them are lawyers.  The rest of us only know it from bitter experience, half-remembered stories, and incredibly vague warnings in financial advice columns that always end with "consult an estate lawyer."

My great grandmother managed to hold property solely in her own name for over 60 years, but she did so with her husband's complete blessing and cooperation and she outlived him.  I have no idea whether she actually managed to follow all the rules and jump through all the hoops necessary to keep the property separate.  The rules are kinda byzantine and archaic.  They act as if money wasn't fungible and don't make much sense in an era of much higher income taxes. 

P.S.  I goofed and hit "like" instead of "quote" again.  I didn't mean to encourage your poor-mouthing yourself. 

[raeoflyte]

Sept 19, 2016 15:27:29 GMT -5 haapai said:

Sept 19, 2016 13:53:09 GMT -5 raeoflyte said:

I don't think you're explaining it wrong, but this just points out to me how completely clueless and uneducated I am.  

There's no need for that kind of auto-flaggelation.  Not many folks outside of the trustafarian class know this stuff, and most of them are lawyers.  The rest of us only know it from bitter experience, half-remembered stories, and incredibly vague warnings in financial advice columns that always end with "consult an estate lawyer."

My great grandmother managed to hold property solely in her own name for over 60 years, but she did so with her husband's complete blessing and cooperation and she outlived him.  I have no idea whether she actually managed to follow all the rules and jump through all the hoops necessary to keep the property separate.  The rules are kinda byzantine and archaic.  They act as if money wasn't fungible and don't make much sense in an era of much higher income taxes. 

P.S.  I goofed and hit "like" instead of "quote" again.  I didn't mean to encourage your poor-mouthing yourself. 

I don't mean it in a bad way--just in a holy moly there is a lot I haven't though of and need to learn!  It's a good problem to have, but its complicates life instead of simplifying it.  

My mom has owned this portion of the property for many decades "separately".  My dad would never consider it is his or go after any portion of it if they were to split, but I'd say that is more just the way they are rather than any legal documents they have set up.  After my grandmother passed away I was talking with my Aunt and Uncle (on my dad's side) about the farm, and my Aunt said something about wouldn't my dad just sell that now.  I had to laugh and compose a nice response, but my thought was that there was no way on earth that my dad would ever sell my mothers farm.  

[Miss Tequila]

Sept 19, 2016 13:18:47 GMT -5 haapai said:

Swamp, you might know the answer to this.  If rae uses marital funds (wrong word, I know) to maintain, repair, or improve the property, has she comingled it? 

ETA:   What if rae got income from the property for years and always deposited in a separate, non-joint account, but also took money out of the account occasionally.  If the property then required an infusion of mooulah that exceeded the amount in the separate account, would the property have become comingled? 

I'm not an attorney...I don't even play one on the internet!lol But that's essentially what we were told. My ex inherited a house from his mom and kept it completely separate.  He was told by their corporate attorney (at work) that if he ever co-mingled the house with family funds (if I ever paid the real estate taxes, utilities, etc) it would be considered marital asset. Interesting that I never thought it odd that he asked then...guess he was planning on the divorce 7 years before it happened

[debthaven]

I'm in France not the US but the laws seem to be identical in this regard (caveat, I know nothing about trusts).

I agree that you should consult a lawyer, but, from what I know, to start, you need to keep that money separate, whatever you do. Put it in a separate account in your name only, not both your names.

If you use it to buy property, it could become co-mingled, unless the property is solely in your name. DH and I both inherited equal amounts from our parents, in about the same time frame. We used the majority of that money to buy rental real estate. But since we have a prenup, and we were each bringing 50%, it was never an issue.

We DID consult with an estate lawyer though, before we did that. And we do have a prenup, which stipulates that if we were to divorce, the courts would look at who brought what money in. Since we do everything 50/50, that's not an issue for us. It's also why we only ever do anything 50/50.

From what I understand, you should only use that money on things that are NOT joint assets, unless you both contribute 50%, or it would be considered comingling. So (just an example) if you want to blow that money on future vacations, or on your children's educations, as far as I know, you can. However, if you use it to remodel your house or purchase property with only you providing the DP, it would probably be considered joint funds. 

Again, you should absolutely consult a lawyer or an estate planner, but this is my understanding. I'm guessing they will tell you something very similar but like Miss T, I'm not a lawyer and I don't play one on TV or the internet LOL.

For now, park it in a SEPARATE account, and get advice. Better safe than sorry.

[debthaven]

If the property then required an infusion of mooulah that exceeded the amount in the separate account, would the property have become comingled?

From my understanding, yes.

[phil5185]

but at this point our situation is as simple as any of these things can be. Mom is inheriting 100% of the property and is disclaiming a portion to my sister and I. Sis isn't married, doesn't have kids and plans to leave everything (not just the farm) to my kids. We all get along, already have comingled finances and properties together.

Hopefully, you and Sis and the farm will be around for another 50 years or so? Over long periods, stuff happens, both good & bad. A lawyer will walk you thru the standard succession plans for all the various cases - you die, Sis dies, kids predecease you, dh dies, a divorce, a new dh (who insists on selling the farm), Sis, gets married, her SO hates farms, wants to cash out and move to HI - or SO loves farms and wants to takeover the hands-on farming. And consider - most of those things seem ridiculous/unlikely based on your version of NOW - but any one of them is a plan-change.
Importantly, Sis should have the freedom (and the assurance) that if she wants to cash out and move to Alaska, she should not have to defend herself, she should be free to live her life as she wants - for the next 50 yrs and beyond. And so should you.

As for "we all get along" - every partnership, family deal, yada starts that way (no one ever says we fight constantly).

[debthaven]

Phil is right. Even if those scenarios are highly unlikely, they can happen.

In France there is a law that says "nobody can be forced to co-own property with somebody else". IOW, if one of the co-owners wants to sell for whatever reason (they need the money, they hate the place, whatever) they can. So either the other person has to buy them out, or the property gets sold to a third party.

Again, it's highly unlikely, but it CAN happen when people marry, or fall on hard times.

ETA: The fact that the owners are you, your sis and your mom obviously diminishes the possibility. I'm sure it will be fine but it's in all your interest to see an estate planner and have things spelled out the way you all want them to be.

[souldoubt]

Sept 19, 2016 16:18:27 GMT -5 phil5185 said:

but at this point our situation is as simple as any of these things can be. Mom is inheriting 100% of the property and is disclaiming a portion to my sister and I. Sis isn't married, doesn't have kids and plans to leave everything (not just the farm) to my kids. We all get along, already have comingled finances and properties together.

Hopefully, you and Sis and the farm will be around for another 50 years or so? Over long periods, stuff happens, both good & bad. A lawyer will walk you thru the standard succession plans for all the various cases - you die, Sis dies, kids predecease you, dh dies, a divorce, a new dh (who insists on selling the farm), Sis, gets married, her SO hates farms, wants to cash out and move to HI - or SO loves farms and wants to takeover the hands-on farming. And consider - most of those things seem ridiculous/unlikely based on your version of NOW - but any one of them is a plan-change.
Importantly, Sis should have the freedom (and the assurance) that if she wants to cash out and move to Alaska, she should not have to defend herself, she should be free to live her life as she wants - for the next 50 yrs and beyond. And so should you.

As for "we all get along" - every partnership, family deal, yada starts that way (no one ever says we fight constantly).

I know some some families have made it work for generations but the people I know who have done business with family or even friends have all advised against it.  All it takes is one person to make life hell for everyone else involved.  If you continue along thinking it can't happen to you and don't plan accordingly this will get even uglier when the situation does change.  As the saying goes pray for the best but prepare for the worst.  

[milee]

Sept 19, 2016 17:43:47 GMT -5 souldoubt said:

Sept 19, 2016 16:18:27 GMT -5 phil5185 said:

Hopefully, you and Sis and the farm will be around for another 50 years or so? Over long periods, stuff happens, both good & bad. A lawyer will walk you thru the standard succession plans for all the various cases - you die, Sis dies, kids predecease you, dh dies, a divorce, a new dh (who insists on selling the farm), Sis, gets married, her SO hates farms, wants to cash out and move to HI - or SO loves farms and wants to takeover the hands-on farming. And consider - most of those things seem ridiculous/unlikely based on your version of NOW - but any one of them is a plan-change.
Importantly, Sis should have the freedom (and the assurance) that if she wants to cash out and move to Alaska, she should not have to defend herself, she should be free to live her life as she wants - for the next 50 yrs and beyond. And so should you.

As for "we all get along" - every partnership, family deal, yada starts that way (no one ever says we fight constantly).

I know some some families have made it work for generations but the people I know who have done business with family or even friends have all advised against it.  All it takes is one person to make life hell for everyone else involved. 

Or one person to marry a person that makes life hell for everyone else involved.
Or one person to have a child that makes life hell for everyone else involved.

And hopefully none of that will happen in your family, but just a few more examples (that are common enough we've all heard of) of why it's worthwhile to get an attorney to help with the planning and to make sure you have an agreement that covers all sorts of eventualities.

[Deleted]

Please forgive me if this has already been addressed, but I haven't seen any discussion of state taxes on income from the property.  Would a separate filing be required with any taxes due paid from a separate account?  I live in a community property state without income tax so I don't have any direct knowledge on the issue but some of my friend's have income-producing properties in other states and have to make out-of-state filings.

[countrygirl]

Check if living in a community property state too, that's different. It's just half and

half.

We just had  mom put her property in my name only.

Just did the same for what hubby got from his folks, we bought out SIL.

We did that mainly because nothing was in his name, no houses, cars, or

anything.

As far as what son does that will be up to him. I told him about

community property.

I would suggest an LLC or some way to help it go where you want, but

do not comingle property or the funds.

You need an attorney to help you.

[Bonny]

I know I'm late to the party here but wanted to make a couple of comments.

You can use the income for whatever you want. The usual issue with real estate is how you pay for expenses. If there's very little income but you have a major capital expense that exceeds the property's income, then you risk having problems down the road whereby a spouse could gain incremental interest over time if you are using joint funds to pay for those capital contributions.

I agree with the recommendations to seek an attorney's advice on how to handle the asset from both a marital POV as well as setting up a management agreement with Sis to address issues as they arise. I know that when my mom passed I made sure I didn't co-own any property with my brother. Between his get rich quick schemes and his bad credit there was a real risk that one of the properties could have wound up with a lien due to his activities. It's no fun being involved in a situation like that. I was involved in a real estate transaction 20 years ago whereby the partners of a developer all contributed their own funds to pay off his IRS lien in order for the property to convey to my organization. No one was happy about the situation but I think they were relieved to be rid of him!

[DVM gone riding]

Sept 20, 2016 6:42:55 GMT -5 countrygirl said:

Check if living in a community property state too, that's different. It's just half and

half.

Actually no, that is were the not mingling comes in. I live in a community property state. Law is fairly clear as long as you don't mingle preexisting assets and inheritances stay sepperate

[countrygirl]

Ok, I gotcha. We did not intermingle the items we wanted to keep separate, not sure

it matters, just what we wanted to do.