Inheritance Dispute Between Siblings

[ScoopKona]

S
My favorite words on the subject -- I went back to find it, but couldn't --
Where you mentioned the tried and true method of fairness.
One does the slicing -- the other gets first choice.

Trying to figure out how to apply this method.

Problem is, daughter wants to do the slicing, and have first choice.

I was surprised to receive a private text today from my son:
"I actually want her to have it-- just not strictly under her terms."

I agree "I slice you choose" is the fair way forward.

BUT.

There is no fair way forward not knowing precisely what the market is willing to pay. Convince the kids to hire a rookie real estate agent and list it on the MLS. Wait for a few offers to come in, and then "cut/choose." Either that means she pays half the fair market value -- minus commissions, fees and similar. Or it's worth too much for her to buy your son out, and they have to sell.

If daughter refuses, she wins the AITA award. Reasonable people will split it evenly at this point.

 

[letsgobobby]

fmv is only fair.

 

[BJRSanDiego]

You shouldn't lie to anyone.

I don't think you'd have trouble getting a realtor to list it for you while telling the truth, and it isn't fraud to list a property and not take an offer if one is received.

I think that if a realtor lists a property in a service like MLS, they incur a cost that would need to be paid by someone.

 

[ScoopKona]

I think that if a realtor lists a property in a service like MLS, they incur a cost that would need to be paid by someone.

It does. The real estate agent. And half the ones I know would gladly take this risk.

 

[kupool]

The best advise you can offer your Executor Daughter is this:
"Money does not matter. No matter what the difference is, it does not matter. Just do the right thing. Whatever the right thing is, do that. Have a clear conscious and be able to look at yourself in the mirror and know you were beyond fair."

Then say to both of them when they are together or heck even a zoom call, "One day, one of you will be in the funeral home, looking at the other. Do not allow anything to come between you. One of you will be the first to occupy a piece of ground 3' wide and 6' deep, the other will soon follow and occupy the same amount of real-estate for eternity. Money does not matter. Only three things matter, Faith, Family, and Friends. That's it. Nothing more. Nothing less."

 

[jabberwocky]

I think this is the best way forward and what most game theorists would recommend.

I would say that the slicing should be the setting of the price and the choosing should be the option to buying out the house at that price or receiving the equivalent cash.

The one who doesn’t set the price gets to choose what “half” they want. They have the option to either:

1) buy the other side out at the specified price and take possession
2) have the other side buy them out at the specified price

The person setting the price would thus have the incentive to select a price that is closest to market value. There are two forces at work.

- If they set the price too low, the other side will be able to buy the property at a bargain price and potentially resell at the higher market price. The person who sets the price would this want to increase the price to avoid this.

- if the price is set too high, the other side will require the price setter to be bought out and take the cash. This the person setting the price has the incentive to avoid paying too much for the house and will lower it in this circumstance.

Note this doesn’t require that the exact market value be known or finding an agreed upon price - just a rough idea of what it is worth is enough to drive both sides to making an economically rational choice from their point of view. No one can take advantage of the other side in this formulation.

Just a suggestion.

S
My favorite words on the subject -- I went back to find it, but couldn't --
Where you mentioned the tried and true method of fairness.
One does the slicing -- the other gets first choice.

Trying to figure out how to apply this method.

Problem is, daughter wants to do the slicing, and have first choice.

 

[Patri]

If a realtor gets involved to help find the true value, what is the harm paying them something? Even negotiate a fee for the process. Be honest in the purpose of the listing.

 

[Talent312]

California has adopted the Uniform Partition of Heirs Property Act (CCP § 874.312).
Under this Act, the Court would determine the FMV of the property based on an appraisal from a disinterested appraiser and other evidence which may be offered, and gives a party who doesn't want a sale, the option to buy out the others at the FMV set by the court.

Perhaps the kids could follow the procedures outlined in the Act, without actually suing each other.

SECTION 6. DETERMINATION OF VALUE.
(a) Except as otherwise provided in subsections (b) and (c), if the court determines that
the property that is the subject of a partition action is heirs property, the court shall determine the
fair market value of the property by ordering an appraisal pursuant to subsection (d).
(b) If all cotenants have agreed to the value of the property or to another method of
valuation, the court shall adopt that value or the value produced by the agreed method of
valuation.
(c) If the court determines that the evidentiary value of an appraisal is outweighed by the
cost of the appraisal, the court, after an evidentiary hearing, shall determine the fair market value
of the property and send notice to the parties of the value.
(d) If the court orders an appraisal, the court shall appoint a disinterested real estate
appraiser licensed in this state to determine the fair market value of the property assuming sole
ownership of the fee simple estate. On completion of the appraisal, the appraiser shall file a
sworn or verified appraisal with the court.
(e) If an appraisal is conducted pursuant to subsection (d), not later than 10 days after the
appraisal is filed, the court shall send notice to each party with a known address, stating:
(1) the appraised fair market value of the property;
(2) that the appraisal is available at the clerk’s office; and
(3) that a party may file with the court an objection to the appraisal not later than
30 days after the notice is sent, stating the grounds for the objection.
(f) If an appraisal is filed with the court pursuant to subsection (d), the court shall
conduct a hearing to determine the fair market value of the property not sooner than 30 days after
a copy of the notice of the appraisal is sent to each party under subsection (e), whether or not an
objection to the appraisal is filed under subsection (e)(3). In addition to the court-ordered
appraisal, the court may consider any other evidence of value offered by a party.
(g) After a hearing under subsection (f), but before considering the merits of the partition
action, the court shall determine the fair market value of the property and send notice to the
parties of the value.

 

[SandyPGravel]

Have you been a landlord?

It's an awful lot of work. You can't trust property managers. And now there's the potential for damage to the property before ownership is decided. This could make an already-bad situation much, much worse.

I absolutely loathe being a landlord. I'd rather just flip houses. The additional income has made it worth it for my wife and I. I still can't stand doing it. But we hardly ever have any disagreements. If my wife wanted to sell and I wanted to rent, it would change my calculus 180-degrees. The only way that makes sense is if everyone involved is in favor of the plan.

Amen to this!! I rented my house(way under rate, didn't even cover my costs) to my mother...she and her dog did thousands upon thousands of dollars in damage to my house. In addition to giving me less than a months notice that she was moving out! (Because she bought her own house to damage that I will eventually have to deal with ) I did recoup some of the money from her, but the relationship is toast.(<----That's burnt toast if my imagery isn't obvious )

 

[Timeshare Von]

I see similar disputes fairly often in the business world, relative to the death of a bowling center owner and them trying to settle the estate between their surviving heirs. Unfortunately, the only fair way to resolve such is to sell on the open market and then divide the proceeds as per the will. If the daughter/executor wishes to buy from the estate, she should pay whatever is necessary for her to acquire the property on the open market. To do otherwise, would not be fairly administering her duties as the executor. She should not benefit at the expense of her brother.

I went through similar steps when my Mom died leaving 3 siblings to haggle over some pretty mundane things. Because the other 2 had not been on good speaking terms for years prior to Mom's death, I had to really make sure I was handling EVERYTHING to the ultimate fairness of all named beneficiaries . . . even when it ended up costing more money in legal fees to do so.

 

[Timeshare Von]

I just received text from daughter saying...
"If brother insists on selling on open market -- he will be dead to me."
Makes my my heart break.

And such is the reality for many siblings. I know it would kill my Mom too . . . but I have also had to take the position with a sibling . . . "who is dead to me" as well.

That said, if the issue is really just this, and over money, that would be sad! Your daughter is seemingly the unreasonable one here. She has a moral and legal obligation to treat her brother fairly, and to protect his rights as an equal heir. It appears from what's been shared here, she's not doing that.

 

[DrQ]

My favorite words on the subject -- I went back to find it, but couldn't --
Where you mentioned the tried and true method of fairness.
One does the slicing -- the other gets first choice.

Trying to figure out how to apply this method.

Problem is, daughter wants to do the slicing, and have first choice.

I was surprised to receive a private text today from my son:
"I actually want her to have it-- just not strictly under her terms."

This could be construed as embezzlement. As a CPA (I assumed licensed) this could put her at peril.

If she is using her position for self enrichment, the brother could petition to have her removed as the executor.

The California Guide to Removing an Executor of Estate | RMO Lawyers

California law allows for the removal of an incompetent or unethical executor under certain circumstances. Read more.

rmolawyers.com

I would look her straight in the eye and say: "You can pay me or you can pay lawyers, your choice."

 

[TheHolleys87]

Digging around on the internet, I found:

"To sum up, executors should not buy the property of the estate, unless it is for fair market value and with either signed consent from each and every beneficiary or an order of the court authorizing the executor to transfer the property to himself."

I sent an email to both, with this information.

The Appraisal was done for the purpose of "Other - IRS Fair Market Value"
The first box said simply FMV -- and that was not checked.

What about getting 3 new appraisals (or at least one new), all checking the FMV box (as opposed to the IRS figure, which I’m sure means to the appraiser “keep this as low as possible so that I don’t have to pay too much in taxes”)? Especially if there’s been enough time since the first appraisal for the FMV to have changed.

 

[b2bailey]

The best advise you can offer your Executor Daughter is this:
"Money does not matter. No matter what the difference is, it does not matter. Just do the right thing. Whatever the right thing is, do that. Have a clear conscious and be able to look at yourself in the mirror and know you were beyond fair."

Then say to both of them when they are together or heck even a zoom call, "One day, one of you will be in the funeral home, looking at the other. Do not allow anything to come between you. One of you will be the first to occupy a piece of ground 3' wide and 6' deep, the other will soon follow and occupy the same amount of real-estate for eternity. Money does not matter. Only three things matter, Faith, Family, and Friends. That's it. Nothing more. Nothing less."

I agree with your values statement. The two of them, not so much.

 

[b2bailey]

I think this is the best way forward and what most game theorists would recommend.

I would say that the slicing should be the setting of the price and the choosing should be the option to buying out the house at that price or receiving the equivalent cash.

The one who doesn’t set the price gets to choose what “half” they want. They have the option to either:

1) buy the other side out at the specified price and take possession
2) have the other side buy them out at the specified price

The person setting the price would thus have the incentive to select a price that is closest to market value. There are two forces at work.

- If they set the price too low, the other side will be able to buy the property at a bargain price and potentially resell at the higher market price. The person who sets the price would this want to increase the price to avoid this.

- if the price is set too high, the other side will require the price setter to be bought out and take the cash. This the person setting the price has the incentive to avoid paying too much for the house and will lower it in this circumstance.

Note this doesn’t require that the exact market value be known or finding an agreed upon price - just a rough idea of what it is worth is enough to drive both sides to making an economically rational choice from their point of view. No one can take advantage of the other side in this formulation.

Just a suggestion.

Well said, I like it enough to copy and paste and email to them.
Is that okay with you?
(I've already told them I have posted the question here.)
Thank you.

 

[b2bailey]

If a realtor gets involved to help find the true value, what is the harm paying them something? Even negotiate a fee for the process. Be honest in the purpose of the listing.

I haven't commented previously about getting a Realtor involved, partly because I appreciate both points of view.
It happens that Daughter is good friends with agent who is often #1 in area.
(And I happened to do bookkeeping for him awhile back.)
If she wanted to know what the house would sell for -- she need only ask him.
My guess is that she already has.

 

[ScoopKona]

What about getting 3 new appraisals (or at least one new), all checking the FMV box (as opposed to the IRS figure, which I’m sure means to the appraiser “keep this as low as possible so that I don’t have to pay too much in taxes”)? Especially if there’s been enough time since the first appraisal for the FMV to have changed.

You can't trust appraisals.

The only use I have for appraisals is to leverage sellers downward on their price. If this was my inheritance, my reply to "lets get it appraised" would be not just "no" but "[censored] no." If I wanted to bring clowns in on the proceedings, I'd call the circus.

I also wouldn't call any attorneys, mediators, priests, comedians, or dental hygienists until I knew precisely what the property is worth; and knew that the other parties in the inheritance had no interest in being reasonable.

Let's say, for the sake of easy math, that the property is worth exactly 1.2 million and there is a principle balance of $200K. Sell. Pay off the loan. And then each child gets $500K (minus commissions, escrow fees and similar). OR one child buys the other out for $500K (minus what commissions, escrow fees and similar would cost).

So, in order to divide this in such a way that's fair, the precise value of the house, and the fees associated with selling it must be known. All of this is easy to do. I wouldn't worry about anything else at all until these numbers are known.

 

[b2bailey]

What about getting 3 new appraisals (or at least one new), all checking the FMV box (as opposed to the IRS figure, which I’m sure means to the appraiser “keep this as low as possible so that I don’t have to pay too much in taxes”)? Especially if there’s been enough time since the first appraisal for the FMV to have changed.

Perhaps THIS is where to start. After seeing the Appraisal, I didn't feel the Comps were appropriate. #1 was located on Ocean Street -- main road into Santa Cruz, less desirable part of town. #2 so close to freeway you could throw a stone and hit a car. This house is located in a niche neighborhood with its own name -- "Seabright" -- nowhere near freeway or busy street.

 

[b2bailey]

You can't trust appraisals.

The only use I have for appraisals is to leverage sellers downward on their price. If this was my inheritance, my reply to "lets get it appraised" would be not just "no" but "[censored] no." If I wanted to bring clowns in on the proceedings, I'd call the circus.

I also wouldn't call any attorneys, mediators, priests, comedians, or dental hygienists until I knew precisely what the property is worth; and knew that the other parties in the inheritance had no interest in being reasonable.

Let's say, for the sake of easy math, that the property is worth exactly 1.2 million and there is a principle balance of $200K. Sell. Pay off the loan. And then each child gets $500K (minus commissions, escrow fees and similar). OR one child buys the other out for $500K (minus what commissions, escrow fees and similar would cost).

So, in order to divide this in such a way that's fair, the precise value of the house, and the fees associated with selling it must be known. All of this is easy to do. I wouldn't worry about anything else at all until these numbers are known.

I enjoy your humor. And yes, your calculation above is on point. It's the starting point hanging it up.

 

[ScoopKona]

I enjoy your humor. And yes, your calculation above is on point. It's the starting point hanging it up.

So, your daughter asks her #1 Realtor Friend to list the property. Pay the listing fee and for the hours to create the listing, if necessary. "We're testing the waters." #1 Realtor Friend will very likely jump on that. There's no down side, and there's the potential for a fat commission check for almost no work at all. Your son, if he's smart, will clean up the house and make it look nice for prospective buyers.

#1 Realtor Friend is required to bring any offers to the sellers -- good, bad or indifferent. Now both children know the actual value of the house. And #1 Realtor Friend can be trusted to know exactly how much the escrow fees, recording fees and especially sales commissions will work out to. (It's the only thing they're typically good at doing.) #1 Realtor Friend will also lean on both of them to accept every single offer that arrives, because that's how they get paid.

 

[rickandcindy23]

ROFR is the way to sell the house.

Now I am realizing that we need to stipulate in our will that the house should be sold at our deaths and that if one kid wants the house, which I doubt, it should be sold as ROFR. That would give the sibling who wants the house the right to pay the offered price. Colorado has that provision as a checkbox in the MLS.

 

[ScoopKona]

Perhaps THIS is where to start. After seeing the Appraisal, I didn't feel the Comps were appropriate. #1 was located on Ocean Street -- main road into Santa Cruz, less desirable part of town. #2 so close to freeway you could throw a stone and hit a car. This house is located in a niche neighborhood with its own name -- "Seabright" -- nowhere near freeway or busy street.

This is why I don't trust appraisers or appraisals.

My wife and I did wine tastings and olive harvesting in Santa Cruz earlier this year. I know this neighborhood. There are only two kinds of houses here -- million dollar houses which can be renovated to at least double their value; and $2-5 million houses.

I renovate houses for a living. If it weren't for the fact I've cashed out and I'm now renovating a farm, I would be on this deal like holy on the pope. There is no way to lose, even if the economy sours.

 

[Timeshare Von]

This is my son's point of view -- her ownership of this asset allows opportunity to realize greater growth than investment of his cash. The RE market here is so rough, you couldn't buy any home for under $5

I haven't commented previously about getting a Realtor involved, partly because I appreciate both points of view.
It happens that Daughter is good friends with agent who is often #1 in area.
(And I happened to do bookkeeping for him awhile back.)
If she wanted to know what the house would sell for -- she need only ask him.
My guess is that she already has.

And she should avoid conflict of interest relationships at all costs!

 

[bizaro86]

I think this is the best way forward and what most game theorists would recommend.

I would say that the slicing should be the setting of the price and the choosing should be the option to buying out the house at that price or receiving the equivalent cash.

The one who doesn’t set the price gets to choose what “half” they want. They have the option to either:

1) buy the other side out at the specified price and take possession
2) have the other side buy them out at the specified price

The person setting the price would thus have the incentive to select a price that is closest to market value. There are two forces at work.

- If they set the price too low, the other side will be able to buy the property at a bargain price and potentially resell at the higher market price. The person who sets the price would this want to increase the price to avoid this.

- if the price is set too high, the other side will require the price setter to be bought out and take the cash. This the person setting the price has the incentive to avoid paying too much for the house and will lower it in this circumstance.

Note this doesn’t require that the exact market value be known or finding an agreed upon price - just a rough idea of what it is worth is enough to drive both sides to making an economically rational choice from their point of view. No one can take advantage of the other side in this formulation.

Just a suggestion.

I like this a lot. Quick, easy, and objectively fair.

 

[davidvel]

Daughter mentioned she is entitled to fee of .01 % of estate value.

You should have your son confirm this in the terms of trust, as it is highly unusual.