Inheritance delimma with tax and debt implications

[afrimax]

What is the name of your state (only U.S. law)? Florida

Greetings:

My mother in law recently passed and we are trying to make some decisions about how to handle and distribute the estate assets. Here is the situation:

- survived by husband and adult daughter;
- she owned homestead with surviving husband. it is a nice sized house and, in retirement, he cannot afford to keep it up by himself. $150k mortgage; $400k market value;
- she owned 4 rental properties in her name alone. 2 are underwater and only clear marginal amount each month;
- she has an amazing art collection at home, surely worth between $50k - $100k if sold separately, probably 500 pieces. No one wants to sell them separately;
- she left modest amount of debt (not including mortgages);
- surviving hubby has all kinds of debt, to the IRS and many others, well over $200k.
- Sale of homestead will resolve most debt, if not all. We want to make sure he can live comfortably without having all of his money impounded by creditors;

Daughter is getting investment property, but here is the question: should hubby get anything in his name?

Should he get art? Will he be forced to sell it off for creditors?

Or should everything go to daughter and she provides father with a living stipend?

Not trying to stiff creditors- and homestead will pay off most- but also don't want hubby living destitute.

Thanks for your time and insight.

 

[FlyingRon]

You don't get to unilaterally distribute the deceased's assets. This needs to be properly done thorugh probate based on the will. Any property held jointly between dad and mom is automatically HIS upon her death. The personal debt of the deceased gets settled from the estate before any further proceeds are distributed to anyone.

If there was no will, if the daughter is the child of the surviving of both the husband and wife and there are no other children of either of him, then dad gets rights to the entire estate. It's not clear why the daughter is getting anything.

 

[afrimax]

There is no 'unilateral' distribution. The husband and daughter are working together. As mentioned in the original post, the deceased left modest debts which will be paid in full with the sale of the homestead. There is no issue about the debts of the deceased, as those are fully covered. Because nothing can be distributed before the sale of the homestead- and the paying of debts- we are trying to think out the other assets.

We understand jointly held property, however, people do disclaim inheritances for tax or other financial reasons- disclaim a house because they cannot afford the mortgage, a pet because they cannot care for it, or gifts over a certain amount due to tax implications- all the time. This is not some unusual request.

The concern are the tax and debt implications of the surviving spouse, not the deceased. The question is does it make sense for him to disclaim a portion of his inheritance so that it is not absorbed by creditors.

There is a will which covers the investment real estate and splits the other assets (art, jewelry) between the husband and daughter. Their relationship is solid, so there is no sense of jealously over who gets what, only wanting to do what makes the most sense. So even if the dad has the right to the entire estate, it does not mean that he wants it all (for tax reasons). In fact he wants the daughter to have some (for love reasons). I hope this makes it clear why the daughter is getting something.

Thanks!

You don't get to unilaterally distribute the deceased's assets. This needs to be properly done thorugh probate based on the will. Any property held jointly between dad and mom is automatically HIS upon her death. The personal debt of the deceased gets settled from the estate before any further proceeds are distributed to anyone.

If there was no will, if the daughter is the child of the surviving of both the husband and wife and there are no other children of either of him, then dad gets rights to the entire estate. It's not clear why the daughter is getting anything.

 

[afrimax]

Quick example of one of our thoughts/options:

The will provides for the daughter to get all 4 investment properties (condos and townhomes that are rented). The hubby automatically gets the homestead and he is not interested in managing any properties. This was worked out while the dearly departed was alive.

However, hubby does not want to remain in the big house, so they will sell. Most of the proceeds will go to creditors, likely leaving him with not enough to buy a new place.

One thing they are considering is for the daughter to take 3 of the 4 rentals and disclaim the fourth, allowing it to go to the husband instead. That way he gets a cheap condo in which to retire. There is no fight about this, there is honest discussion about what is best for both (she will get the rental once he passes) and, as far as we know, this is neither improper nor illegal nor 'unilateral'.

The question is: what are the tax or debt implications of such a move? Will the condo count as income that he is taxed on? If there are outstanding debts, will the condo be subject to a lien (there is a lien on the homestead)? Would it make more sense for her to own it and rent it to him?

That is what we are trying to figure out, now how to unilaterally distribute assets.

Thanks for thinking about this.

You don't get to unilaterally distribute the deceased's assets. This needs to be properly done thorugh probate based on the will. Any property held jointly between dad and mom is automatically HIS upon her death. The personal debt of the deceased gets settled from the estate before any further proceeds are distributed to anyone.

If there was no will, if the daughter is the child of the surviving of both the husband and wife and there are no other children of either of him, then dad gets rights to the entire estate. It's not clear why the daughter is getting anything.

 

[FlyingRon]

You need to give us a rough magnitude of the estate value. If it's less than $5.4 million there's no federal estate tax to worry about. Florida has no state estate/inheritance tax.

Again, you are going to need a lawyer. You can't do this without probate.

All the property actually inherited will receive a stepped up basis to the fair market value at the time of mom's death.

I'd also recommend that you speak with an attorney about dad's assets. You don't want to do anything that will make him ineligible for medicaid with your transfers.

 

[afrimax]

Excellent point about medicaid.

We just met with a probate lawyer, so looks like we are going that route. Thanks for taking the time.

You need to give us a rough magnitude of the estate value. If it's less than $5.4 million there's no federal estate tax to worry about. Florida has no state estate/inheritance tax.

Again, you are going to need a lawyer. You can't do this without probate.

All the property actually inherited will receive a stepped up basis to the fair market value at the time of mom's death.

I'd also recommend that you speak with an attorney about dad's assets. You don't want to do anything that will make him ineligible for medicaid with your transfers.

 

[LdiJ]

Quick example of one of our thoughts/options:

The will provides for the daughter to get all 4 investment properties (condos and townhomes that are rented). The hubby automatically gets the homestead and he is not interested in managing any properties. This was worked out while the dearly departed was alive.

However, hubby does not want to remain in the big house, so they will sell. Most of the proceeds will go to creditors, likely leaving him with not enough to buy a new place.

One thing they are considering is for the daughter to take 3 of the 4 rentals and disclaim the fourth, allowing it to go to the husband instead. That way he gets a cheap condo in which to retire. There is no fight about this, there is honest discussion about what is best for both (she will get the rental once he passes) and, as far as we know, this is neither improper nor illegal nor 'unilateral'.

The question is: what are the tax or debt implications of such a move? Will the condo count as income that he is taxed on? If there are outstanding debts, will the condo be subject to a lien (there is a lien on the homestead)? Would it make more sense for her to own it and rent it to him?

That is what we are trying to figure out, now how to unilaterally distribute assets.

Thanks for thinking about this.

I would not give him the condo. I would just let him live there in exchange for covering the expenses.

 

[FlyingRon]

I would not give him the condo. I would just let him live there in exchange for covering the expenses.

Why not, it would be his anyhow. I'm missing what's really in it for Dad giving the fact that all this is HIS. Legally the daughter is entitled to nothing here.

 

[afrimax]

Ron, legally the daughter is entitled to nothing. Got that.

However, many families make decisions based on factors other than what is the legal rule. In this case, Dad does not feel some compunction to 'own' what he is legally entitled to for two reasons:

First, he is 75 years old, loves his daughter and wants her to have everything when he passes. This is saving a step. He also knows that his daughter will use the assets to take care of him if they are not in his name. Just to be clear, they are NOT arguing with each other here, just trying to figure out what makes sense for them as a family. There is no fighting at all, only strategizing.

Second, dad has a big judgement against him from years back. A HUGE bill. So, if dad takes ownership, upon death, instead of the property going to his daughter and staying in the family, it will go to a hospital/insurance company.

Dad has nothing to lose with daughter having legal title, but what is in it for him is his love for his child. She gets a nice gift and he helps her avoid probate in the next decade or so.

Why not, it would be his anyhow. I'm missing what's really in it for Dad giving the fact that all this is HIS. Legally the daughter is entitled to nothing here.

 

[afrimax]

Looks like this is where we are leaning.

Big problem is that when Dad passes, looks the condo will be sold to pay off the estate's bills instead being handed down in the family.

Thanks for the help here.

I would not give him the condo. I would just let him live there in exchange for covering the expenses.

 

[justalayman]

Why not, it would be his anyhow. I'm missing what's really in it for Dad giving the fact that all this is HIS. Legally the daughter is entitled to nothing here.

Legally daughter is entitle to something. I understood the daughter gets the investment properties. Art gets split between husband and daughter. That is per the will.

No idea if estate is required to pay off debts of real estate investment properties.

 

[AdoptADog]

Is the daughter the child of the deceased AND the husband? Or just the mother and a step-child of the husband. Was there a will? From what I understand, it matters in Florida.

 

[justalayman]

Is the daughter the child of the deceased AND the husband? Or just the mother and a step-child of the husband. Was there a will? From what I understand, it matters in Florida.

Op said there was a will awhile back. Said daughter gets real estate investment properties and art split between husband and daughter.

 

[AdoptADog]

Op said there was a will awhile back. Said daughter gets real estate investment properties and art split between husband and daughter.

DOH!! Missed that, thanks

 

[afrimax]

Is the daughter the child of the deceased AND the husband? Or just the mother and a step-child of the husband. Was there a will? From what I understand, it matters in Florida.

Yes, Adopt, the daughter is the child of both the deceased and the husband.

There is a will (husband gets homestead as per Florida law, which cannot be undone by will; daughter gets 4 investment properties; daughter and husband split art, but mostly for daughter). We are trying to figure out if it makes sense for either party to disclaim part of their inheritance for the greater good.