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Family trust
wallabeeX
Registered User regular
Registered User regular
So, I just took a phonecall from my older sister where she revealed to me that my father's about six months out from filing for bankruptcy. In her long history of empowering herself and taking control of situations that might not be hers to control, she's decided that she will buy the family vacation land from my parents to a) keep the land out of any bankruptcy that might ensue and b) save them the money that the mortgage is costing them.
The land was bought for $20,000 back in 1980, but it's lake-front property in a highly desirable part of this country, and it's safe to assume it's worth $300,000 at this point. The stated amount she's planning on purchasing the land for is $100,000. I respect her intentions entirely - it's better for her to own the land than for bank to - but part of me starts to get a little nervous about the implications here. I've heard enough stories in my lifetime about these situations going wrong, and quite frankly, I'm in a position where I could help pitch into this problem and keep my name in the hat, so to speak. She doesn't want to get involved with a family trust because it'd require too much coordination, and my little sister isn't in a position to afford such a thing at this point. This is all new news to me, and I'm a little taken aback, so while I do some research on trusts, I was hoping someone might be able to shed light on this kind of situation.
The land was bought for $20,000 back in 1980, but it's lake-front property in a highly desirable part of this country, and it's safe to assume it's worth $300,000 at this point. The stated amount she's planning on purchasing the land for is $100,000. I respect her intentions entirely - it's better for her to own the land than for bank to - but part of me starts to get a little nervous about the implications here. I've heard enough stories in my lifetime about these situations going wrong, and quite frankly, I'm in a position where I could help pitch into this problem and keep my name in the hat, so to speak. She doesn't want to get involved with a family trust because it'd require too much coordination, and my little sister isn't in a position to afford such a thing at this point. This is all new news to me, and I'm a little taken aback, so while I do some research on trusts, I was hoping someone might be able to shed light on this kind of situation.
wallabeeX on
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This is your family's vacation property
Worth $300K
And instead of putting it on the market it is somehow a better idea to sell it for a third of the price to your sister, to protect it from your father's imminent bankruptcy status
Which I would assume would not happen if he were to, say, magically stumble upon $300K
Uhhhhhh
Do you want a trust so that you can still lay claim to the property? For a nominal fee, a lawyer should be able to lay out the details for you better than any of us. I don't see a jointly owned piece of property requiring a significant amount of coordination.
I don't know your sister, would she do this to get a fuck awesome house at a fuck awesome price?
My parents basically work all year just to be able to weekend at this property during the summer. They'd happily sacrifice every other possession to keep this one. I think my entire family is in agreeance that it should stay in the family. Selling it not an option, and as mentioned, probably wouldn't sell for a fair price right now.
My sister's intentions are good, and she made it clear that nothing would change about how the property functioned. She's intending this to be cheritable, and I'm just trying to get over the red flag that is "family property suddenly being owned by one family member who, at times, can be fairly short-sighted and controlling".
Mostly want to know my options.
That sounds like some fucked up priorities. However, I believe if they can show that the land was sold below market value as some way of protecting it they can try to go after it. If theyre working all year and can't afford the property, they can't afford their lifestyle.
Is it paid for? If they've borrowed against it you're probably fucked. This is lawyer/accountant territory though. I do agree that doing land business with family is a super-bad idea. If your parents accept gifts like a summer home or whatever from your sister and decide to keep going as though nothing has changed, your sister could be implicated in any fraud charges.
edit: If your sister has 100k laying around to buy land, why doesn't she assist your parents directly?
Now, since you don't seem to 100% trust your sister - or at least realize this situation has the potential to get ugly - you may find that she isn't willing to help your parents monetarily but is willing to do this, so she gets the house/property for herself. If this happens, my advice to you is to stay the hell out of it and don't get involved or you could very easily be getting into an ugly family feud. Just stay as neutral as possible.
I'm not trying to diss your sister, but when it comes to property - especially lakefront vacation property - anybody can start to get greedy, and if that's what's happens you're better off to wash your hands of it and just try to help your parents through what's undoubtedly going to be a difficult time.
The market value of the house + land is likely $220-250,000. Probably more like the price I gave last year, but times have changed.
What I didn't make clear before was this is an attempt for my father to stay OUT of bankruptcy. She called me today to bring up the idea that she get a loan with her husband to buy this land for less than market value. In the same phone call, she also suggested that she front my father $10,000 (myself and my other sister to pay her back) to keep him afloat for another six months. This would be a gift, but the true spirit would be paying him back for covering our college education (which is a good part of why he's in this hole in the first place). Essentially, she wants to take over $100,000 of his debt, and give him $10,000 to pay down additional debt. He's got about $200,000 in home equity on two homes, and $125,000 on credit lines.
I'm coming at this from a few, mixed views. On one hand, I see how charitable she's being, and I see how it could benefit him. He saves $1,000 a month on loan payments, gets $10,000 from the three of us, and can start cutting down on credit bills. On the other hand, people change a lot in 20 years and what's "all of our" property now could easily turn into "her and her kids / grandkids" property. I'm not saying that's who she is now, I trust her now, but I recognize people change and drama happens. It just does, especially in family. In addition, I don't think 10,000 is going to do jack squat for his debt - it'll pay down some interest. The problem here is getting rid of those high interest loans, and her plan doesn't deal with that.
Now, as I mentioned, I want to be involved in helping him get back on his feet. In addition, my father's made it clear that he'd like to stay on as part of the debt holders for the property. If the issue here is $325,000, it seems to me that it only makes sense we form some sort of trust that purchases the property for fair market value of between 200 and 250,000. I keep my name and right to the property, my sister gets the same debt she was trying to take on before, my father still has his name on it, and in addition, he gets rid of his $100,000 equity loan, and dumps the rest into his credit debt. He stays out of bankruptcy, the property is transferred to the family, and we all contribute equal amounts. At the end of the day the property is a red herring - it's really just four people getting together and helping one of us out of debt.
I just don't know if it works like that. Can it be that easy?
What would ideally happen over a piece of family property is X buys Y out.
Not going "Oh, really?! I should've just pony'd up the $150 / month portion back when I was 25."
So you may look into if your sister can do that. Even paying 100,000$ for it, if it is valued at 300,000$, then she may still lose it in the end.
When you are more financially stable in the future, you can always buy your own vacation property. They will always be available. Just because it's been 'in the family' for ages doesn't mean you should blindly jump into a legal clusterfuck to keep it.
At minimum I would participate in the 10,000$ loan, but I would avoid that, because unless your family is extremely understanding of each other's situations that could get ugly. If you do happen to do it, write up a contract DETAILING EVERYTHING so everyone is on the same page. Minimum monthly payment, etc.
1) Your parents are trying to figure a way out of their debt without losing their vacation home.
2) Your sister is trying to buy your parents' vacation home.
3) You are worried about losing any "rights" to this home that your parents currently own.
First of all, if you're really worried about your parents' financials, you should probably talk to them and see what their plans are as far as their debt is concerned. Are they going to a financial advisor? Are there other assets they could consider selling? Are they being realistic about their situation?
As far as your sister is concerned, I would stay out of it completely. This isn't your decision unless someone is asking for your permission to move forward with this. This is your parents' and sister's decision. She is willing to take on a loan (which I'm guessing they wouldn't qualify for) to buy their house. Whether this falls into the "gift" tax scenario is something you might mention they check out, but other than that, stay out of it.
It seems to me that your real concern is that you want "rights" to the house. Someone mentioned earlier, that valuing a vacation home above all else is questionable when it comes to priorities. Your parents are facing bankruptcy and you're worried about being able to use this vacation house 20 years from now should your sister end up owning it.
I think the best thing you can do right now is try to support your family in any way you can and let go of any proprietary feelings you have towards the vacation house. It's not yours - stop thinking of it that way.
I don't think having the property change hands is the best possibility from a tax standpoint. I don't know much about bankruptcy law but what others have said so far is correct - it may not save the property if they go into bankruptcy later, even if coughing up money now forestalls it.
But depending on your state and the intricacies of the tax code (consult a lawyer, not a tax processor, if you want the right result here), selling the property is probably going to trigger capital gains or income taxes on the difference of the value of the property when it was acquired and today. Furthermore, depending on your state tax law, county assessors may have statutory limits on how much they can raise property taxes each year - say, they can only raise it by 3 or 4%. When you sell the property, they may, again depending on state tax law, be able to raise the rate to whatever the maximum is for the new fair market value of the property.
So whoever buys the property, or the trust, may get stuck with a higher tax bill, and your parents will owe lots of money in taxes after the sale. As far as gift tax issues go, there are statutory limits where you can give gifts tax free - it's going to be a fraction of the sale price, but one issue you should raise with the trusts, wills and estate or tax lawyer you work with on this transaction is going to be how to leverage gift tax allowances when pricing the sale, if you decide to sell it to a family member or create an inter vivos trust.
I make more than anyone else in my family. I'm not going to say that's a *ton*, but I'm a single 25 year old working 60 hours a week OT (minimum) in the lucrative VFX industry. Part of my insult to this situation was I was aware of the trouble looming and was actually preparing for it. I have several thousand I can hand to my father free and clear - which I had planned to do. It just seems strange to me that, while I'm in such a great financial position, I'm watching my sister pick up the family plot on the cheap. I have great sentimental value with that property, and hope that in the future, my kids and their kids will have rights to the same memories that I formed there. It seems strange that while I'm confident I could afford to pitch into this property for the long term, I'm going to sit down and let her lay claim to it.
I agree with the above statement, and there's something that rings very real about just ducking out of this situation and letting my sister "save the day". I'm still happy to hand my father the money free and clear, and plan to do so outside of my sister's loan. I agree that vacation land is always available, and this might not be a fight worth fighting. There might be some legitimacy to her claiming everyone will still have equal rights to the land, and in that kind of scenario, ducking out of this saves me a couple hundred dollars a month for the next thirty years. Especially for a piece of land 3,300 miles from me.
Anyway, I haven't talked with my father, but that's the next logical step. I just needed to get over the initial anger before I talked to anyone closely connected to this situation.
This feeling is jealousy. Which is why I'm recommending just buying your own vacation land, because I see drama happening between you two either way at this point.
First of all, dad selling the 300K property to your sister for 100K. That's a 200K gift to your sister. That's about 100K in taxes, give or take, if you don't structure this properly. Additionally, this is a transfer to an interested party, meaning that the bankruptcy court, if dad does declare bankruptcy, is going to undo the sale (1 year look-back period, I believe, unless there's fraud).
Aside from that, talk to your sister about her intentions. If she just wants a face-saving way to help dad, this isn't a bad deal. If she really wants to keep you involved in the property, there are ways to do that. As a vacation home, where neither of you will be, there are major liability concerns, meaning that a family limited partnership, trust, or LLC ownership should be considered. Besides, if you so that, you can structure the deal in all sorts of fancy ways to avoid taxes, bankruptcy, estate taxes, and everything else that people hate.
Deciding to just ignore the whole deal and hope your sister lets you visit is a viable option. Otherwise, do it right. Get a real estate lawyer. In a complex situation like this, the only thing more expensive than hiring a lawyer is not hiring a lawyer.
Also, to the "don't ever do business with family/friends" post, I'll say that the problems don't usually arise just because there's business. It's because of misunderstandings. Everyone assumes that everyone else has the same deal in mind, and when those assumptions turn out to be different, its a mess. If there's full disclosure and - GASP - documentation, most (not all) fights can be avoided, and those that can't are dispatched according to pre-established rules. Plan for the divorce while you're still on the honeymoon.
Yes, it's jealousy, because your sister is preying on your and your parent's interests. Try to keep a legal ownership interest in the property or keep it in your parents' hands.
Well, unless bankruptcy laws are different in your jurisdiction, it doesn't matter how you feel about the situation - because the trustee in bankruptcy is going to trace your father's debts through to the bullshit transaction at below-market price with your sister, and they're going to take the property anyway. Not to mention the fact that the capital-gains liability is going to negate any benefit anyway.
Tell your father to talk to his lawyer/accountant, and just sit back and be glad you aren't being invited to buy into this mess.
Your sister is essentially preying on the sentimentality associated with the property to scam your father into releasing sole ownership of it to her for a fraction of it's value whilst still leaving him in substantial debt. Her motivations might not be so devious, but even if she thinks her idea is helping out, it ultimately isn't in your fathers best interests to proceed with this arrangement.
This is clearly not the time to be clinging onto sentimental luxuries like $300,000 holiday homes, your family should be thankful that they have that spare asset to liquidise
The best way to get your father out of debt and keep the holiday home in the family is to purchase it from him at whatever price he would be able to realistically get for it on the open market. Any other way is entirely too fraught with pitfalls for my taste.
What I did pull away from the conversation is that my father is desperate for solutions, but also feeling strongly about trying to keep this land for all of us. He clearly feels uneasy about the idea that his daughter would buy the land and it'd be "hers", especially since he intends to keep living on the land as he gets older (I think the idea is she'd rent it to him). It's clear to me that a lawyer needs to be involved, and I think the plan was always to get to that point - this is very preliminary. What I accomplished was just making my wishes known, which is to be involved in this if I can be. Now that I've made my intentions clear, if my sister decides to cut me out, well, that's drama I'm not going to chase. I'm not deaf to the advice given so far, but was working on the assumption that my family assumed I wasn't able to contribute. Now that I've made it clear that I am, if they decide to proceed without me, that's not something I'm going to persue.
In the meantime, I'm going to start sending my parents money so they can continue to eat, and hope that my father lands a new building project soon. From the sounds of it, Southern Maine is in rough shape.
Someone needs to have a come to Jesus with him and tell him that you'd much rather him be solvent than have a vacation home. I mean, NO ONE is keeping vacation homes, and certainly not people who are about to go into bankruptcy. Is it really that much more important to him that he have a second home than be solvent?
I don't know how true that is. If this is really a highly desirable lakefront location, then, in my sub-amature-economist opinion, the housing market crash probably wouldn't affect it's price too much (as long as there are a lot of other highly desirable lakefront locations for sale nearby.
I'll again restate that selling the lakefront property outside of the family is not an option. I know the sensibility of doing it, I know how it stands to save them, and believe me, so does my father. That said, we're trying to work out a solution where we don't lose that property and he remains out of bankruptcy. That's the point of this thread, to provide advice for ways to do that. And to maybe confirm suspicions I had about my sister's motivations.
The thing is, if this is in ME as the OP mentioned them living at least earlier, then yes there are tons of other houses on the market, especially vacation homes. And that doesn't take into consideration competition from homes in similar areas in NH, MA and VT.
And then everyone says, "NO THAT IS NOT A GOOD IDEA!!!"
And the guy replies back, "But I really want to text her, can you just tell me what to say so that she doesn't call the cops? Not contacting her is not an option, because the herpes she gave me is in remission and I really need to get some at the present time before my dick is covered in festering sores again."
I don't get the impression they're like "OMG we'd have to live without a vacation home, like savages??" but more like they have great memories of their family there, and want future generations to enjoy it as well.
Selling it might be the best solution as far as making their father comfortable money wise, but if he can keep the land, scrape by for awhile with low funds and eventually recover when the economy does I think they personally value that option more.
Here is an alternative that probably no one will like, but is quite possibly the best thing to do if the family doesn't want to see ownership shift one way or the other. Both you and your sister can simply support your parents through this time. If they need help making mortgage payments, both of you can help them, no strings attached. It sounds like you both have the money to do so, so it's a real option.
I suppose that's overly optimistic, but if anybody is worried about shenanigans, it's probably not a terrible thing to do.
Thylacine's correct. By all accounts my family's been scraping the money together to keep this land for 20 years for that reason. We've never been rich by any means, but it's the one luxury we have and my sister and I are both in VERY good financial positions to safe the property at fair market value. I just made this thread to see if there was a feasible way to make that happen, together. I'm not some guy trying to ignore the fact that my girlfriend's cheating on me, but instead, a guy deciding whether he wants to commit to a the love of his life WITH herpes, or whether he wants to just walk away and look for better options.
Can be locked.