Lawyer and/or Financial Experts...

[dogface]

I was asked a couple of weeks ago from an individual (non-family member) if my wife and I, would accept his offer of us being in his Will. He is an older gentleman with uncertain health, and no family ties. He has some extended family, but has not seen or talked to them in years.

He stated he has around 200k in savings, and owns his house outright valued at around 220k. He requested that we be the one's he leaves it to. My wife and I talked it over, and accepted the responsibility, and told him we would be honored.

My question now mostly revolves around what to do with this stuff financially and what happens?

More specifically, what are the tax implications to us since I am not a family member and being made the inheritor? (This would be the house and saving etc.)

When we receive the house (it is already paid off) would it be better to sell right away and take the income from it, or rent it out for a few years and then reap the benefits of increased real estate appreciation. (Wouldn't take much to take care of since the house is very nearby.)

He is having a will drawn up, and apparently there is nothing for us to do. (I asked him if he needed us for anything, he said no just our legal names, phone numbers and address.) Today he stopped by an told me the will is almost completed, and that tomorrow he goes back with a list of all the people he wants excluded from his stuff (lack of a better term right now, sorry if it seems caddy). The lawyer said he needs to do that so no one in his family can then contest the Will. Is that accurate and appropriate?

I have never been apart of such a thing, and to be quite honest it is sad to think of. A loss of an individual and then benefitting from that loss, but he mentioned it was a great relief that we accepted, and that he can live peacefully knowing he is helping a great family.

I appreciate the advice and information that I am sure to read on here...

TSI

 

[TAZ]

You'll want a lawyers input as well, but..
My understanding is it does not matter that you are not family, anyone can be a beneficiary of a will. I have also heard that if you want someone excluded from a will you should state it explicitly in the document or leave them $1, if it is silent, it can be challenged.
With the house, when you inherit it your basis will be the fair market value on the decedant date of death. You can also choose a date exactly 6 months after the DOD, this is an alternate valuation date. Your basis is important because proceeds from a sale less basis equals taxable capital gain. Short story is if it is worth $220k and you sell it for $220k, you pay no tax.
If you choose to rent it, the rental income will be ordinary income to you annually (taxed at your bracket). When you sell it in the future you may pay tax on sale. Consult your friendly Mad Jacks board for those situations if needed.
When it is all said and done, if you have cash in hand, use some for something fun, then pay off any debt, max out retirement options and 529 plans if you have kids.

Good Luck!

 

[AR182]

i agree with taz.

i would consult a local attorney who knows your state's tax laws.


good luck!!

 

[dogface]

Thanks for the info, for the record the state is MN just in case someone on here is familiar with the laws

TSI

 

[Fat & Sassy]

LMF

LMF

Dogface,

This sounds like a made for TV movie....

I am not an expert, so please do not put any faith in the comments I am about to make.... But I find it hard to believe that you would pay more taxes because you are not family?.. Also, I don't know what you're adjusted gross income is, but I'm thinking if the inheritance and you're adjusted gross income are below $500,000 the year he passes away you will pay no taxes?...

Curious to read what our resident experts have to say....

Please tell me you at least mow this guys grass for him?...

 

[dogface]

F&S-

Long story short...he is a neighbor of mine that I have only known for about a couple of months. He is 71, has CHD, is diabetic, and told me (after our discussion and acceptance) that his arteries are blocked again at least 2 of them, with a third operating at around 80%.

He just stopped by a few months back after the snow melted to introduce himself, and we "hit it off' I guess. (I think I am like a son he never had) he enjoys my little one and my wife. He sits in a chair outside his garage everyday watching the neighborhood (LOL) and waits for me to get home. He then walks over and starts a conversation , typoiclaly surrounded around how is BP is doing. He is lonely, afraid to die, etc., and I treat him as if he is a guy my age. Last month I invited him over to my wife's B-day, we had a barbecue with some extended family, and he participated. Overall we are just down home nice people, that enjoy good company and great neighbors. Apparently the neighbors around us, just do not communicate to him, and I think it is because he comes of as too lonely for them and their lives. To us, he's a nice guy that likes a conversation partner everyday, and I have no problem with that.

I was just as shocked when he asked me as well, but his answer simple and straight forward. I do not want to leave anything to anyone that I do not know and have them benefit. I also don't want to leave it to my Alma Mater, because to them I am a number and another way to get more $$$...I see no need or value in that. He then mentioned we were the best neighbors he has ever had, and has been thankful since we moved in. (Storybook like I know, but the downside is profiting from someone's demise. It is much sadder than you would think as money is not an issue for us (anyone could use more, but it is not a need) and the thought of losing someone for a gain is difficult, and I am quite sure will be more difficult when the event happens. But his comment to me helps me through the obvious painful component...I don't want to leave it for anyone, I dreaded everyday that I didn't have someone to leave it to...but now you have taken a load off of my shoulders. I am just glad you said yes!

Since I am not an expert in these area, I value advice going into it, and always appreciate a good education. I find most of the info passed on here has been not only correct, but timely and appreciated.

TSI

 

[DOGS THAT BARK]

D.F I am sure with estate that size heirs will file claims of his competency/cohersion RE (Why would guy in right mind leave estate to almost stranger). Agree that you should contact attorney. His attorney should recognize what will follow and recommend he draw up trust vs will---however that will exclude attorney from probate fees around $25,000 minimum on estate that size so he "might" fail to mention that alternative.

 

[SixFive]

Nice story. He's probably never met anybody nice before you since he lives in Minnesota

I don't have any advice on legal matters, I'm just glad that you and your family have treated this man with respect and been kind to him. The sad thing is that his family hasn't done the same. You mentioned that he is probably scared and most certainly lonely, and I would agree. Too bad everybody can't show some kindness to their fellow man, especially the elderly and infirm (it's not hard to be kind, is it dogface?).

 

[dogface]

DOGS THAT BARK-

Now you got me confused? Don't want to sound totally lost, but what's the difference, and why? How shpould that come up in a conversation...any ideas?

6-5-

Not hard to be nice at all, it happens to be my preference. LOL! People are people, I enjoy them.

TSI

 

[cooz3]

dogface..

probate laws differ by state so i hate to sound repetetive but consulting with a "friend" who knows an attorney who deals in this field in your state would probable be your best bet...

i am well read in the area ..although it is not my primary field..im a litigator in employment and labor field ..however i have taken many courses in wills/trusts and probate laws..

a long story short ..a Trust will avoid probate and "speaks" and exists as a legal document during the lifetime of the creator..a will speaks only at death...it has absolutely no effect during the lifetime of the testator or creator (for lack of better terminology)...a Trust does not pass through probabte and avoids taxation on a number of fronts

if your concerened about taxation consequences ..talk to an attorney who deals in the field of estate taxation...and there are no additional taxes because you are not a family memeber..at least i have never encountered any such law in any case i have read regarding estate taxation...

i can help you out with some general questions ..but state specific i would be wary because im not well versed with your state laws...

good luck

cooz

 

[Waldo]

No idea about the legal aspect of someone contesting the will but as Taz put it it will be tax free (unless you hold the house and it appreciates).

Trust or estate shouldn't matter as that total would be well below the estate tax threshold.

Good luck.

 

[dogface]

Thanks everyone:

MN Stat Law, can anyone paraphrase:

Probate
With few exceptions, the estate of a person who dies owning property in his or her name cannot be legally distributed without first going through probate. Only if all of a decedent's property is held in joint tenancy or in trust can survivors avoid probate. Probate can operate either formally, with court supervision, or informally, without court supervision. Whether formal or informal, the first duty of the probate division is to determine whether the decedent left a valid will. If the decedent left a valid will, the division oversees the process of settling the estate according to the terms of the will. If the decedent did not leave a will or if the probate division determines the will is invalid, the probate division applies the state inheritance laws, described earlier, to the estate.
Informal probate is designed for estates in which court supervision or adjudication is not required because the estate has no uncertainties, legal disputes, or complex administrative requirements. A personal representative can apply for informal probate and become personally responsible for probating the estate completely, correctly, in accordance with state statutes, and promptly. Most personal representatives engage an attorney to handle at least a portion of their duties even with informal probate.

When the probate division formally supervises distribution, its responsibilities may include:

Overseeing the distribution of estate assets, including payment of state and federal taxes
Hearing any contested claims by creditors or others seeking to collect from the estate
Choosing a personal representative when one is not named in the will
Supervising the actions of the personal representative, including the payment of state and federal taxes
Ensuring that the personal representative posts a surety bond to protect creditors and others in the event that the executor acts improperly
Deciding which possessions are subject to estate administration and which are not
Determining a decedent's true heirs
Ruling on the legitimacy of any claims outstanding against the estate
Supervising the transfer of assets to beneficiaries named in the will
Overseeing a guardian's use of property placed in trust for the benefit of children or dependents
Making out a will does not guarantee that survivors can avoid all problems of distribution, but a carefully drafted will can mean that their time in court is minimized.

Avoiding Death Taxes
A carefully created estate plan can considerably reduce the tax burden on an estate. Although the state of Minnesota no longer has an inheritance tax, under Minnesota and federal law a decedent with an estate worth more than $600,000 must file an estate tax return and possibly pay federal and Minnesota estate taxes. The federal government's inheritance tax scheme is quite complicated. Under federal tax law a person is allowed to leave $600,000 tax-free to one or more individuals, other than a surviving spouse. The surviving spouse is entitled to receive an unlimited amount tax-free. If the estate is a very large one, however, and the entire estate is left to the surviving spouse, that surviving spouse may lose the option of giving $600,000 tax-free to individuals of his or her own choosing. An experienced tax attorney can create trusts that will allow the two spouses to pass on a total of $1,200,000 free of unnecessary estate taxes. Regardless of whether the recipient pays state or federal estate taxes, there may be income tax consequences for the recipients under a will.

 

[Doughboy]

That appears to be old law, as now I believe the amount has gone up to $1 million per person. So if he wanted to give you up to $1 million, it should tax without being taxed. If he had a living wife, then they could pass $2 million to you. I think this is right, and will check out some sites tomorrow and reply. In regards to the probate thing, if there is a will in place, I again think you should be ok.

 

[dogface]

Doughboy appreciate the help...

I was speaking with him today and read the compelted Will, but it's funny...at least IMO. It's a difficult conversation to have with someone when you are asking him to get his bank accounts in order, title's to his car, property information, etc...

Then whne the inevitable happens, God willing I live long enough, what then? How would anybody know what to do next? Do I go to the lawyer that construed the will, get my own lawyer involved first? (Gotta find one!) How the heck would you know how to go to probate court?

LOL! I always thought I was somewhat intelligent, but it's all relative when you are utside your area of expertise. You should all watch me attmept to build a shed next week!! (I normally pay people for that because I am not handy...but my wife thinks it would be FUN! WOW!

TSI

 

[DOGS THAT BARK]

DF Didn't want to confuse you--Basically trust are much harder to contest if at all. After death occurs and all proceeds are settle a will and probate will be a matter of public record and a trust will not.
On the attorney matter--the attorney handling probate ect gets cut out of estate ranging from 5% to more, so in most cases it would be financially beneficial "for them" to not recommend route of trust unless they were named trustee/co-trustee for which they could also receive equivilant compensation.

Don't know what I would do in your situation--it is hard enough to speak to ones parents on that topic without sounding greedy I can see it would maybe more difficult in your setting--however you must realize this is his choice and he is asking you for assistance so do not feel quity in discussing things openly with him.