Deleted
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Post by Deleted on Jan 28, 2011 12:25:27 GMT -5
It looks like I have some rough numbers in on an inheritance. I would like some advice on what others would do in this situation. I know my relative was incredibly generous to give this to me and I am grateful, but I am so stressed out.
Inheritance:
-a house that is significantly upside down with respect to the outstanding mortgage. It has been in my family for 3 generation.
-401K accounts
-life insurance policy
-savings account
The house would make a good rental. It is in a good location, but I would have to use all of the life insurance and savings to pay down the mortgage and refi to get any positive cash flow.
The house could also be sold and the life insurance used to cover the shortfall. I would then have some of the life insurance and the savings left.
I do not want to withdraw the 401K money, because that would initiate a huge tax liability. I can roll that into an inherited IRA.
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Post by Savoir Faire-Demogague in NJ on Jan 28, 2011 12:27:20 GMT -5
We need numbers.
The fact that an asset has been in a family for a number of generations is not relevant.
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jeffreymo
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Post by jeffreymo on Jan 28, 2011 12:37:32 GMT -5
This message has been deleted.
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Post by Deleted on Jan 28, 2011 12:42:01 GMT -5
I would be very wary of making it into a rental.
If it were me, I would get out from underneath it and sell it.
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Post by Deleted on Jan 28, 2011 12:43:49 GMT -5
The fact that an asset has been in a family for a number of generations is not relevant. I'd argue that it is very relevant in the decision-making process of what to do with the home. Decisions don't always need to rely on a spreadsheet only. But yes, you certainly need to include some numbers here before anyone can be of help. How much is paid on the house? What's it worth? What's the remaining mortgage? What are the value of the other accounts? What's your current financial situation?
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jeffreymo
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Post by jeffreymo on Jan 28, 2011 12:48:17 GMT -5
I looked around the web a little and it appears that the designated beneficiary (for the life insurance policy) determines quite a bit.
If you are designated as the beneficiary, the deceased's debtors can't touch this money....in most cases.
If the estate is listed as the beneficary, the deceased's debtors can seize these funds to cover deficiencies.
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Post by daennera on Jan 28, 2011 12:48:27 GMT -5
I know the home has been in the family 3 generations.............but even if we were talking about the house that I grew up in I would still give the bank the house and keep the rest.
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Post by Deleted on Jan 28, 2011 12:58:24 GMT -5
I know the home has been in the family 3 generations.............but even if we were talking about the house that I grew up in I would still give the bank the house and keep the rest. I figure if I were to do this, the bank would just come after the estate, which does have the funds to pay the shortfall without the life insurance. The funds would be in assets going to other people and the 401k's. I think the intent behind structuring the inheritance this way, was so that the person who got the house had the money to make things right with the bank.
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mwcpa
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Post by mwcpa on Jan 28, 2011 13:51:31 GMT -5
"I do not want to withdraw the 401K money, because that would initiate a huge tax liability. I can roll that into an inherited IRA. "
No, that only works for spouses... you must take distributions...
"a house that is significantly upside down with respect to the outstanding mortgage. It has been in my family for 3 generation"
so let it go... why spend money for an asset that has no value (unless for reasons other than financial you want it and can afford it).... you are not obligated to pay the mortgage of the person who passed away.... the persons savings account is probably at risk to the creditor though...
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Post by Deleted on Jan 28, 2011 13:58:29 GMT -5
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Plain Old Petunia
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Post by Plain Old Petunia on Jan 28, 2011 14:02:47 GMT -5
I figure if I were to do this, the bank would just come after the estate, which does have the funds to pay the shortfall without the life insurance. The funds would be in assets going to other people and the 401k's. I think the intent behind structuring the inheritance this way, was so that the person who got the house had the money to make things right with the bank. The 401ks are not part of the estate. Their value is included to determine estate tax, but the money belongs to the named beneficiary, not the estate. But yes, certainly the bank holding the mortgage would come after the estate for any shortfall. This sounds like a group decision, since other assets and people are involved. What do the other heirs think?
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Plain Old Petunia
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Post by Plain Old Petunia on Jan 28, 2011 14:05:04 GMT -5
"I do not want to withdraw the 401K money, because that would initiate a huge tax liability. I can roll that into an inherited IRA. " No, that only works for spouses... you must take distributions... Inherited IRAs are not only for spouses. The person is obviously talking about avoiding one big withdrawal, not avoiding distributions.
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Plain Old Petunia
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Post by Plain Old Petunia on Jan 28, 2011 14:08:30 GMT -5
I must have used the wrong term, I don't think it is called a roll over. I know I have to take distributions, but I can now take them over my life expectancy. You didn't use the wrong term, Pooks.
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Gardening Grandma
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Post by Gardening Grandma on Jan 28, 2011 14:37:20 GMT -5
The IRA issue aside, you'll get better advice if you post more specifics: actual numbers and who the beneficiary is on the life ins. Also your own financial picture especially goals.
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beergut
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Post by beergut on Jan 28, 2011 15:02:44 GMT -5
mwcpa,
Actually, you're the one who is wrong. Spousal and non-spousal 401k accounts (we are talking about the latter here) can be rolled to an inherited IRA.
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Clever Username
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Post by Clever Username on Jan 28, 2011 15:06:28 GMT -5
Let's just admit that this is a difficult decision.
My opinion: $$$$$ or get off the pot. Fish or cut bait.
Either you want the family homestead or you don't. Keeping it, but renting it out is a lousy plan. You don't really get to use/enjoy it which is the natural followthrough to the emotional attachment. It also carries the risk that a bunch of lousy tennants will not lovingly care for your beloved ancestral home. They won't, it just a rental. Tennants are hard on rentals.
Yes, life insurance and retirement accounts flow outside of the estate, irrelevant of debt. So, if there's nothing to give them, they dont' get anything.
If you want the home, you may be able to buy it from the estate at market value. But I've got an itch in the back of my head that wonders where that mortgage cashout refi money went to.
Be sure to work carefully with your estate atty.
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Post by Deleted on Jan 28, 2011 15:47:05 GMT -5
Let's just admit that this is a difficult decision. Yes, life insurance and retirement accounts flow outside of the estate, irrelevant of debt. So, if there's nothing to give them, they dont' get anything. If you want the home, you may be able to buy it from the estate at market value. But I've got an itch in the back of my head that wonders where that mortgage cashout refi money went to. Lots to think about. Some of the money went to a complete gut of the house. I have no idea where the rest went. I did not know that retirement money was not part of the estate. The rental idea is because we had considered buying a rental in that area. It is a great location, awesome city view and it has parking. I also may want to live there someday, just not right now. I am beneficiary on the life insurance and 401k's they aren't going through the will.
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DVM gone riding
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Post by DVM gone riding on Jan 28, 2011 16:26:00 GMT -5
if the 401k and life insurance are listed to direct beneficiaries the bank can't touch them-just let them take the house. If everything is listed to the estate then you are screwed and you might as well pay the bank and refinance and keep the house
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Post by Deleted on Jan 28, 2011 19:01:54 GMT -5
Inheritance est.:
Mortgage: $290,000 House value: $225,000 Savings: $30,000 Life insurance: $105,000 401K: $163,000
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Plain Old Petunia
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Post by Plain Old Petunia on Jan 28, 2011 19:07:34 GMT -5
Who (or what) is the beneficiary of the life ins policy?
ETA: I just read. You said you are.
Are there other bills and/or debts to be paid from the 30k savings?
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Post by Deleted on Jan 28, 2011 19:10:16 GMT -5
Who (or what) is the beneficiary of the life ins policy? I am listed as the beneficiary for all the accounts listed, including the life insurance. I know there are other accounts in the estate, but they go to another person and I have no idea what the amount involved is.
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Plain Old Petunia
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Post by Plain Old Petunia on Jan 28, 2011 19:12:57 GMT -5
So this other person is receiving money that isn't life insurance proceeds or from a retirement account?
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Post by Deleted on Jan 28, 2011 19:13:46 GMT -5
Who (or what) is the beneficiary of the life ins policy? ETA: I just read. You said you are. Are there other bills and/or debts to be paid from the 30k savings? I don't think so. The residual estate is supposed to pay for everything.
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Post by Deleted on Jan 28, 2011 19:15:22 GMT -5
So this other person is receiving money that isn't life insurance proceeds or from a retirement account? Yes. The rest of the 401K, other bank accounts, and a pension payout, which will go through the estate.
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Plain Old Petunia
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Post by Plain Old Petunia on Jan 28, 2011 19:34:14 GMT -5
The bank accounts are the kicker. If you decide to let the bank foreclose on the house, they can come after those bank accounts. Therefore, they have little incentive to say, accept a short sale offer. You have to also consider the hard feelings this may cause with the other heirs.
Do you believe the house is a good long-term investment? Do you want to hang onto it? Are there other family members who might want it?
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Post by Deleted on Jan 28, 2011 19:44:39 GMT -5
The bank accounts are the kicker. If you decide to let the bank foreclose on the house, they can come after those bank accounts. Therefore, they have little incentive to say, accept a short sale offer. You have to also consider the hard feelings this may cause with the other heirs. Do you believe the house is a good long-term investment? Do you want to hang onto it? Are there other family members who might want it? I do think it will cause hard feelings. The estate was structured the way it was to pay for the house. If you notice, you add up the 401K, savings, and the life insurance and you have the value of the mortgage. Now the taxes on the 401k's makes it so I can't withdraw that money, but I think that was the point. I do think the house will eventually be a good investment.
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Post by debtheaven on Jan 28, 2011 21:11:08 GMT -5
I would have to use all of the life insurance and savings to pay down the mortgage and refi to get any positive cash flow.
Are you sure about this? How much is the mortgage? How much would you get in rent? What shape is it in? Is it rentable as is, or would you have to put money into it to rent it? Does the money spent from the refi mean that the house is in good shape now, and easily rentable?
I'm going to disagree with the others. If you were thinking of buying a rental in that area, and might want to live there one day, I would consider holding onto it. Note the word *consider*.
We don't have enough info yet. I'd need to know how much the mortgage is and how much rent you could get.
Also, is that housing market declining, stable, or appreciating? That too would figure into my decision.
I'm sorry for your loss.
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mwcpa
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Post by mwcpa on Jan 28, 2011 22:40:59 GMT -5
in regards to the 401(k) and having it moved to an inherited IRA one needs to be careful... the retirement funds MUST be withdrawn in accordance with the provisions of the law (the first withdrawal must occur within a year)... the law does allow for longer periods than it used to, but the requirements for that treatment are specific...spouses are afforded the ability to defer the distributions longer.... seems I jumped the gun on my initial comment... I misread the initial comment about not wanting to take the money, assuming the poster wanted to delay all distributions...
from IRC section 401 (a)(9)(B)
(ii) 5-year rule for other cases. A trust shall not constitute a qualified trust under this section unless the plan provides that, if an employee dies before the distribution of the employee's interest has begun in accordance with subparagraph (A)(ii) , the entire interest of the employee will be distributed within 5 years after the death of such employee.
(iii) Exception to 5-year rule for certain amounts payable over life of beneficiary. If—
(I) any portion of the employee's interest is payable to (or for the benefit of) a designated beneficiary,
(II) such portion will be distributed (in accordance with regulations) over the life of such designated beneficiary (or over a period not extending beyond the life expectancy of such beneficiary), and
(III) such distributions begin not later than 1 year after the date of the employee's death or such later date as the Secretary may by regulations prescribe,
(iv) Special rule for surviving spouse of employee. If the designated beneficiary referred to in clause (iii)(I) is the surviving spouse of the employee—
(I) the date on which the distributions are required to begin under clause (iii)(III) shall not be earlier than the date on which the employee would have attained age 70 1/2, and
(II) if the surviving spouse dies before the distributions to such spouse begin, this subparagraph shall be applied as if the surviving spouse were the employee.
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Post by Deleted on Jan 31, 2011 11:19:47 GMT -5
Does anyone know if there is a way to sell the house, use the funds from the life insurance to pay the shortfall, but never take actual ownership of the house? I don't want to have to go through the step of getting a new loan and pay all those fees just to sell.
As of today, I am really thinking I am just going to sell. It stinks, but I can't make the #'s work without more $$$ and it just isn't there.
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Post by Deleted on Jan 31, 2011 11:21:18 GMT -5
Does anyone know if there is a way to sell the house, use the funds from the life insurance to pay the shortfall, but never take actual ownership of the house? I don't want to have to go through the step of getting a new loan and pay all those fees just to sell. As of today, I am really thinking I am just going to sell. It stinks, but I can't make the #'s work without more $$$ and it just isn't there. The estate should be able to sell the house. So before you actually take the inheritance of the house, the estate can sell it.
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