I am in a situation where I'm dealing with my father's estate and family, and I need some outside advice. First some background...My father and I weren't very close, but we spoke on the phone every few months or so and I tried to visit him at least 4 or 5 times a year spending the day and/or evening catching up. He was very private. My husband and I have been there to help my father when he needed us moving and for medical issues recently. My brother has not been in the picture for over a decade and refused to have a relationship with him.
My father died intestate the end of last year and left me as his roth IRA beneficiary of about $40,000. He left a car that was paid for, a home with a mortgage of about $123,000 (and in disrepair of about $30,000 to $40,000 worth of siding/windows/etc), and about $2,000 in credit card/other debt. My brother signed forms to allow me to become the sole administrator of his estate. I sold the car and tried to get my brother to agree to let my husband and I take over the home and rent it out and I would split the IRA with him. I don't think the home will sell without repairs. He said he wanted $30,000 or to try to sell the home, and he doesn't care if it goes into foreclosure. I have just gotten the home listed on the market (it needed some cleaning and other interior completion work). It is listed for about $175,000 and am now running out of funds in the estate. We have a few more months of mortgage payments, and my hardship case was denied with the bank. We've had an offer on the home that was terminated once their contractor took a look at the home and gave the potential buyers an estimate on repairs that they weren't comfortable with.
With all this going on, my brother has been pressuring me to give him half of the IRA because he's scared I will put it into the house. I have refused until the estate is settled and I figure out what I need to do in my father's estate's best interest. He hasn't been here to help clean up the home or clean out my father's things, and this has been disappointing to me--I've realized all he is after is money.
My husband and I have a decent financial position. I work part-time as needed editing and take care of our 2-year-old, he works full time, we have a rental property that just about breaks even, and we bring home about 55,000 a year. I have about $80,000 in a 403b/pension plan, he has about $20,000 in a roth, and we have $30,000 in savings. We own our cars and have a few month's operating expenses in the bank. Now I also have in my name a beneficiary roth left to me by my father of $40,000. We're in our mid 30's and I'm going back to school for nursing in August (which will incur, of course, educational and childcare expenses we are not used to--so I may have to find another part-time position). We also have about $50,000 in home equity in our primary and rental homes.
My husband wants me to have a lawyer draw up paperwork for my brother to walk away from the house for $20,000--a buyout for the house. I think he would agree to this. My problem with that is that renting the home after we finance the $123,000 remaining loan encumberence will only cover the mortgage, property manager, insurance, and taxes. There won't be anything left to cover maintenance/repairs or other unforeseen expenses. I feel like it is possibly too great a financial risk as we don't have any free income as it is.
I've toyed with all kinds of ideas in my head. I've spoken with a lawyer who seems to think I've got this and to come back when I decide what I want to do if I need him. Does anyone have any kind of advice? I'm wanting to put half of the IRA my father left me into the home to lower the mortgage when we refi and keep the other half for maintenance/repairs/expenses/etc, but we're scared my brother will come after me in the future legally. I am feeling terrible about the home possibly moving into foreclosure. I know it is NOT smart to do business with my brother if he were to have any interest in the home, because I've now seen his true colors. Any help would be greatly appreciated.
Thu Mar 31, 2016 6:31 pm
oldguy Senior Member
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quote: because he's scared I will put it into the house. I have refused until the estate is settled and I figure out what I need to do in my father's estate's best interest. He hasn't been here to help clean up the home or clean out my father's things, and this has been disappointing to me--I've realized all he is after is money- .if he were to have any interest in the home, because I've now seen his true colors. Any help would be greatly appreciated.
Wow - true colors? Just after the money?
OK, "after the money" need not be a pejorative, after all, that's all he is left with - so of course he wants to protect his interests. And fiddling the money away on repairs/upgrades IS a very common problem.
I'm a long-tine landlord, rental houses for 40 yrs. When you spend $40,000 on siding/windows, etc, on a for-sale house - it adds only about $20k to the value (about 50%). That is an instant $20,000 loss to you & bro. It is better to do an "as is" sale, (except for clean up & maybe some paint). Bro is trying to keep you from making that mistake.
I would finish the administration of estate, "as is", get the house appraised "as is". And then decide if you want to purchase it from the estate, - or sell it. Don't let the upgrades/repairs become involved in the estate split. Later, the new owner (you or a new buyer) can decide how much to spend on it. (Usually siding is a maintenance item that protects the building - and new windows are more likely to be 'nice/more energy efficient').
quote: I'm wanting to put half of the IRA my father left me into the home to lower the mortgage when we refi and keep the other half for maintenance/repairs/expenses/etc, b
Finish the estate first - bro doesn't want it, he is trying to keep you from spending too much on the house. After the estate is complete, he won't care if you spend $200,000 to add a second story and $50,000 for golden plumbing (I think you are misreading his concerns).
But don't spend money to add equity to the house, do the opposite, ie get a bigger loan. That way you will have more money in reserve - and you won't need a bunch of high interest, shortterm loans for upgrades.
Thu Mar 31, 2016 9:07 pm
GardenCat Full Member
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Agree with OldGuy. Repairs to the house can end up being a financial black hole, as it seems like there is a fair amount of "deferred maintenance". If you and husband can do some easy cosmetic work: paint, curb appeal yardwork, anything to make it appear nicer...then do that and proceed with the "as-is" approach. Especially as you state that keeping it as a rental will barely break even - which in reality means it will cost you $$$.
Have a sit down with your brother - estates and money from deceased parents often bring out the worst in family members, and you are already at each other. You need to come to agreement on how to proceed!
Try to get some affordable legal advice about your father's debts and what the estate is liable for so that you both have good and reliable info from which to operate from to clear the estate and split any proceeds.
The IRA is technically yours, not your brothers, but it is in reality a windfall for you. Also, you may need to dip into it to keep up payments on the mortgage until the house sells. Try to not be attached to the house except as an asset of the estate, which you are going to absolve...
Good Luck! Keep Calm...
Thu Mar 31, 2016 10:55 pm
KMF New Poster
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Location: East Coast
Thank you so much for the other points of view. This is all a learning process for me.
I'm not doing unnecessary repairs. We are only doing absolutely necessary stuff--biohazard cleanup after 3 weeks of a decomposing body in a floor in one room. I also cleaned really well, cut the yard, touch up painted, repaired doors and windows after EMS forced entry, etc. Insurance helped with a lot of this (and my husband is in construction) so we were lucky for that--but we still have to pay the mortgage while the home is going through all these repairs, hence why the funds are gone. I'm going to have to use the IRA to pay the mortgage, and my brother is completely against that. He says he would rather see the home go into foreclosure than use half of the IRA that he thinks is his to pay to keep it on the market. Homes in this area average 6 to 8 months to sell, and so far buyers are turned off by it needing other structural repairs. So far the "as is" sale seems to be meaning we are either breaking even or not even bother cause it won't sell for what we need it to to pay all fees and remaining loan on home. I'm hoping we are lucky and get a buyer who can see the pros of the property (huge yard, man cave, bonus room, almost immaculate interior, freshly painted, etc). It's hard to take so much time out of your life to work so hard on something and earn no return on it.
The estate account only has a few thousand dollars left, and the mortgage payment is $730 a month. I can't borrow more money cause it will be costing me monthly to hold onto the property with an uncertain employment future. I did think of that though, good idea! Also, the estate will not be able to close until the loan encumbrance is met from what I understand, unless I'm understanding something wrong.
Thank you all for your comments and advice. It is much appreciated. I just hope my brother doesn't continue to make it difficult for me. He is expecting half of the IRA, which I guess is the whole problem. He doesn't understand that his interest should be in the home, what he has a right to. Now that it looks like it won't sell he's not happy. And I really need to use the IRA to get the monthly payment down on the mortgage--but I think he will fight me on the home. His issue is he knows real estate is worth more in the future and he doesn't want to see us sell it and make a profit in the future. Almost exactly what he said in the beginning.
I also hate to let it foreclose, drawing out the estate. Ugh, I just wish we had a will to make this easier.
Thank you again for your advice. It is much appreciated!
Fri Apr 01, 2016 12:38 am
oldguy Senior Member
Cash: $ 718.00
Joined: 21 May 2006
quote: He says he would rather see the home go into foreclosure than use half of the IRA that he thinks is his to pay to keep it on the market. Homes in this area average 6 to 8 months to sell, and so far buyers are turned off by it needing other structural repairs. So far the "as is" sale seems to be meaning we are either breaking even or not even bother cause it won't sell for what we need it to to pay all fees and remaining loan on home.
Well, spending more money won't improve the "breaking even" part, it will worsen it. When you spend $40,000 for repairs it usually adds only $20,000 to the sales price - ie, the more you spend the more you lose.
As for dragging out the selling period to 6 or 8 months - I would not - while you wait to squeeze a higher price, you will be paying $9000/yr for mortgage, taxes, etc. I would sell it right away at today's price. (Last yr we sold a rental house within hours of the listing).
But don't worry about having to pay, you are not responsible for the debts of the deceased - after the house is sold, the money in the estate goes to pay the bills - and after the estate's money is gone, that's the end of it - you won't be asked to pay for your father's outstanding debts.
When you notified the mortgage holder of the death, did they suggest that you keep paying the loan? Or stop?
Fri Apr 01, 2016 1:54 pm
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Location: South Carolina
I'm not a tax expert so please double check me. I was under the impression an inheritted IRA could be rolled into your existing IRA at no tax hit and not effecting your annual limits. I always see tax advantaged money as worth a more, I'd agree with the above at prioritizing getting the house unloaded and try as hard as you can to not tap the IRA funds.
Fri Apr 01, 2016 8:47 pm
GardenCat Full Member
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Joined: 07 Dec 2014
Well,... to be blunt - your brother needs to get a grip (or in the vernacular...Man Up!)! Your (and his) father left the IRA to YOU. Technically you have no responsibility with this money in any way towards your brother.
As you say, his interest in the estate is whatever your father left, NOT including the IRA - i.e., assets minus debts. AND, as OldGuy said, once the house is "liquidated" any funds will likely have to be used to pay any estate debts (your father's outstanding debts). IF there is any $ left after that you can split with your brother. If there are debts unpayable after the house is sold, you need not worry - no person or entity can come after YOU or your brother for paying a debt of your father unless you or your brother's name(s) are attached to the debt (via some co-signing contract).
I agree with OldGuy - sell the house "as-is" for whatever the best deal is that you can get. It is not really worth hanging on to if it will cost you money - it could seriously deplete your inherited IRA, and the IRA is obviously something that your father hoped would be a benefit to YOU, .... NOT to his estate...!
I wish you well. It seems to me that you are proceeding in a responsible manner.