Inherited ranch

Non-investing personal finance issues including insurance, credit, real estate, taxes, employment and legal issues such as trusts and wills
Topic Author
Bones72
Posts: 10
Joined: Sun May 12, 2019 11:13 am

Inherited ranch

Post by Bones72 » Sun May 12, 2019 11:24 am

Advice needed. Parents have passed. Small (400) acres of ranch land to be split 4 ways. One branch of family wishes to purchase it, which is fine. However, they want to pay it out to the other heirs over 20 years, no interest. Thoughts? Advice? This has already caused a split n the family. The price offered is fair, below market value, but its family. The 20 year payment is uncomfortable.

User avatar
mhadden1
Posts: 695
Joined: Tue Mar 25, 2014 8:14 pm
Location: North Alabama

Re: Inherited ranch

Post by mhadden1 » Sun May 12, 2019 11:41 am

Bones72 wrote:
Sun May 12, 2019 11:24 am
Advice needed. Parents have passed. Small (400) acres of ranch land to be split 4 ways. One branch of family wishes to purchase it, which is fine. However, they want to pay it out to the other heirs over 20 years, no interest. Thoughts? Advice? This has already caused a split n the family. The price offered is fair, below market value, but its family. The 20 year payment is uncomfortable.
I would avoid such a lengthy and unfavorable arrangement. Is there a will? If so, what does it say, and what does the executor say about it?
Oh I can't, can I? That's what they said to Thomas Edison, mighty inventor, Thomas Lindberg, mighty flyer,and Thomas Shefsky, mighty like a rose.

LFS1234
Posts: 93
Joined: Fri Feb 08, 2019 4:13 am

Re: Inherited ranch

Post by LFS1234 » Sun May 12, 2019 11:42 am

My view: "Neither a borrower nor a lender be" - especially with family.

If you want to give them a discount, do it in the purchase price. But they'll have to find a third-party lender.

CascadiaSoonish
Posts: 139
Joined: Tue Feb 13, 2018 11:44 am

Re: Inherited ranch

Post by CascadiaSoonish » Sun May 12, 2019 11:44 am

Split the difference, maybe? A substantial down payment out of any liquid asset portion of assets the purchasing family members would otherwise be entitled to, as well as language outlining how defaults or disagreements would be handled? Or a profit-sharing arrangement for use of the land in lieu of interest?

alex_686
Posts: 4693
Joined: Mon Feb 09, 2015 2:39 pm

Re: Inherited ranch

Post by alex_686 » Sun May 12, 2019 11:47 am

Welcome to the forum.

These things tend to be tricky and I have seen these things tear families apart. Whatever you try to do, try to be generous.

Do you know why they are looking to you to finance instead of going through a conventional bank or farmer's co-op? They have 25% equity in the place, so that is effectively 25% down.

Do you desperately need the cash? If not I would suggest the following counter offer, a 20% discount on the market price plus a loan at market rates. Or maybe just offer them a 20% for cash and they have to host Thanksgiving for the next 10 years.

retire2022
Posts: 804
Joined: Tue Oct 02, 2018 6:10 pm
Location: NYC

Re: Inherited ranch

Post by retire2022 » Sun May 12, 2019 11:48 am

What if they sell it for a profit later? Would you be entitled to the proceeds? Seems very complicated and not clean. I would not do it, what if you need liquid cash in the future? Most people sell at market value, I would do it at same market interest as a bank.

GCD
Posts: 944
Joined: Tue Sep 26, 2017 7:11 pm

Re: Inherited ranch

Post by GCD » Sun May 12, 2019 11:51 am

The family issue complicates it beyond simple financial fundamentals. Personally, I don't like to mix money and friends or money and family, although the first is a little easier to avoid. Money + family is inevitable when dealing with wills, etc.

I would try to extract myself from this. As posted above, give them a discount for being family, but don't get sucked into some 20 long term plan. It's like ripping off a bandage, just git 'r done.

User avatar
Sandtrap
Posts: 7468
Joined: Sat Nov 26, 2016 6:32 pm

Re: Inherited ranch

Post by Sandtrap » Sun May 12, 2019 11:52 am

LFS1234 wrote:
Sun May 12, 2019 11:42 am
My view: "Neither a borrower nor a lender be" - especially with family.

If you want to give them a discount, do it in the purchase price. But they'll have to find a third-party lender.
+11111
Wiki Bogleheads Wiki: Everything You Need to Know

CascadiaSoonish
Posts: 139
Joined: Tue Feb 13, 2018 11:44 am

Re: Inherited ranch

Post by CascadiaSoonish » Sun May 12, 2019 11:57 am

retire2022 wrote:
Sun May 12, 2019 11:48 am
What if they sell it for a profit later? Would you be entitled to the proceeds? Seems very complicated and not clean.
Happened in our family. Youngest of several children is given the family farm with the understanding that it will stay in the family. Almost immediately sells the property and does not share the proceeds in a fair / equitable manner. So I'll amend my earlier comment, while there are certainly creative ways to handle the transaction, there are huge risks here to the family dynamics.

EdNorton
Posts: 99
Joined: Wed Jan 02, 2019 11:11 am

Re: Inherited ranch

Post by EdNorton » Sun May 12, 2019 11:59 am

It takes a lot of nerve to ask for a 20 year 0% interest loan. I would get the real estate appraised and give the buying side of family a discount equal to sales commission, and a market rate loan, if you don't need the money.

Or have an auction.
Outside a dog, a book is man's best friend, inside a dog, it's too dark to read - Groucho

adamthesmythe
Posts: 2834
Joined: Mon Sep 22, 2014 4:47 pm

Re: Inherited ranch

Post by adamthesmythe » Sun May 12, 2019 12:15 pm

If you cannot reach agreement, any one of the four can force sale of the property through a partition action. That will be time-consuming, costly, and damaging to intra-family relationships.

Balance the cost of this with the problems of a sale with sub-optimal terms.

texasdiver
Posts: 3015
Joined: Thu Jun 25, 2009 12:50 am
Location: Vancouver WA

Re: Inherited ranch

Post by texasdiver » Sun May 12, 2019 12:19 pm

Don't do it.

My mother was in this exact same situation except it was 5 siblings and a 5-way split.

In 20 years all manner of craziness can happen. In my mother's case her sister married an abusive controlling psycho, had 3 kids in close succession, and then died leaving the abusive psycho in-law with a seat at the table where no one wanted him, making all kind of abusive and unreasonable demands on the rest of the family.

The strategy I think was to be the world's largest a**hole so that everyone else would just pay him to go away, but then he was too paranoid to actually take the money and go away because he thought he was somehow being taken advantage of. So they were chained to him. Then he died and they had the 3 children to deal with. One was a normal girl in nursing school. One was a boy living in Dad's trailer in Florida stockpiling guns and working at a string of fast food jobs. The third daughter took up with some older survivalist religious nut she met online and moved to Quebec. The land was in PA but none of these 3 had ever actually been within 500 miles of it.

Do whatever it takes to make a clean separation.

Topic Author
Bones72
Posts: 10
Joined: Sun May 12, 2019 11:13 am

Re: Inherited ranch

Post by Bones72 » Sun May 12, 2019 12:30 pm

The contract-type payout is old-school tradition in farm country. But those days have passed. Huge farms, Game-farming( land for hunting) and the current agriculture economy all point me towards an auction. That requires a third-party lender. Thanks all

User avatar
prudent
Moderator
Posts: 6513
Joined: Fri May 20, 2011 2:50 pm

Re: Inherited ranch

Post by prudent » Sun May 12, 2019 12:35 pm

I'm in the "no" camp. Saw the same situation cause massive discord in a relative's family. Even if there's no solution that makes everyone happy, avoid the inter-family loan option at all costs.

I'll spare everyone the details but it came down to the person who wanted the land just stopped making payments to the others, essentially daring them to do anything about it. It was a royal mess. Any time someone griped about getting stiffed, the response was "but we're family."

If I was the executor, I would subdivide the land into 4 equal parts, hand each heir their deed, and call it a day.

retire2022
Posts: 804
Joined: Tue Oct 02, 2018 6:10 pm
Location: NYC

Re: Inherited ranch

Post by retire2022 » Sun May 12, 2019 12:36 pm

CascadiaSoonish wrote:
Sun May 12, 2019 11:57 am

Happened in our family. Youngest of several children is given the family farm with the understanding that it will stay in the family. Almost immediately sells the property and does not share the proceeds in a fair / equitable manner. So I'll amend my earlier comment, while there are certainly creative ways to handle the transaction, there are huge risks here to the family dynamics.
Cascadia just reminded me to post my story here:

viewtopic.php?f=1&t=276265&hilit=land#p4447032

I brought 89 acres and closed in upstate NY approx Oct 2016 at 56 years old, it cost me $160K.

It took me about six years of searching, my criteria was flat or near flat property, very private, with or without a house, within the "Delaware Watershed" as fracking would be less of issue, in a rural community.

Having visited several properties before, I settle with this broker in 2013 who believed in me and said if you are patient you will eventually get a deal. I had at this point 30K savings.

Oct 2015 was the first time I visited this house, is was decrepit house on property, built in 1930 and had four extensions, the house looked in better shape a couple of times when I visited it, my broker told me the house is worthless and mentally I ignored that thought. We presented an offer and there were four family members who owned it, two brothers, a cousin and their aunt. The two brothers balked at the deal, they thought it was too low. Then they dropped their broker, we heard nothing for several months. My broker contacted me in spring 2016 and said the house was on the market again. We gave an higher offer, I could had waited and low ball it again since there was no heating system, roof compromised, and cousin and aunt was more cooperative. The property has a small creek or stream, which the family had forgotten and no mention in original ad.

Then we signed a earnest contract and found out there was no will, we insisted letters of intestate and they needed to go to Surrogate Court, this delayed the deal for months. Found bees on side of house, spring well not working, property was being lumbered, 95% of property still forested.

I told my friend to go visit my property when she and her family was on vacation, they discovered a squatter on the property, my friend thought he was dead.

Once Surrogate court approved of sale, the second deposit was released to family, I hired the surveyor, and visit the site, found out there were two other squatters on property. I took them to Burger King and gave them a happy meal, never saw them again. They were drug addicts and homeless in a rural community.

I wanted to hire beekeeper to remove bees, told them in July 2016 I'm not ready since I did not close. The bee keeper told me I need to remove them by August/September since they will begin to move indoors around that time. By the time I was ready to hire them, her husband passed away probably from drug over dose, opioid. The beekeeper later gave me a phone number of her future son-in law, I'd google his phone number, got his name from Spoeko.com, and found out he was arrested for opioids.

This was an all cash sale, I had $102K from Cash Value of life insurance, 70K cash value in savings. My surveyor made about 12K off of me, my Broker earned about $ 2500, closing cost was about $3000.

It cost me 15K to install a well, finding one was hard.

A few months after I closed, I hired an arborist who was certified and experience around power lines, I asked him to cut down 9 trees around the transformer whose wires were almost encased by the trees, that cost me $1600.

Finding arborist or tree cutters in this small 2800 community was hard, no one would return phone calls, nor would tell you they were interested or say no we are busy. Found out getting labor was a problem.

My main issue is finding labor, they are conservative but act like they are entitled to work. Lots of issues finding help and work. I always wanted land upstate and away from people. I got HELOC for new 4 wheel drive vehicle, there are plans to take down house and build something else, but have issues trusting GCS and builders. I will be chosing a high end modular builder if I can identify one.

There is more since then, but I didn't want to bore you with too much details, or if some of them would perhaps recognize this tale, PM me if you want to know more.

edit: the Seller, the brother who lived in the home (my property), ended up in a nursing home, the brother who lived in NJ became the trustee, the brother who lived in the home screwed the NJ brother by lumbering the trees without sharing the proceeds, in the end the brother in NJ ended up with the upper hand.
Last edited by retire2022 on Sun May 12, 2019 12:49 pm, edited 2 times in total.

OldBallCoach
Posts: 129
Joined: Mon Dec 10, 2018 5:22 pm

Re: Inherited ranch

Post by OldBallCoach » Sun May 12, 2019 12:40 pm

I tend to agree with those giving the advise NOT to give an interest free loan to the family member...but...what is the price this person is willing to pay and have you all had a third party appraise the land? I have never loaned any money to any family member...I give it to them and tell them if things work out pay me back...if not, well we are still close as a family and I can make more money, hard to make more family...If the banks will not loan the money to this family member that might be a red flag.

jminv
Posts: 896
Joined: Tue Jan 02, 2018 10:58 pm

Re: Inherited ranch

Post by jminv » Sun May 12, 2019 12:45 pm

I would try to force an auction too. There’s no reason to offer them a below market price and a below market loan. They can sell it at any time for a profit and have no real risk since you’re lending them the money to do so. If they ever have problems with payments, it can be very hard on family dynamics level to force a default. I have always been very uncomfortable lending money to family or friends. I only do it when I’m willing to lose it all.

My mother’s family went through something similar and they decided that it would be better to sell. Unfortunately, the sibling that wanted to keep the place (and I believed, flip it), doesn’t talk to the rest of the family to this day because of it, so that’s always a possibility.

User avatar
happymob
Posts: 610
Joined: Wed Nov 18, 2009 4:09 pm

Re: Inherited ranch

Post by happymob » Sun May 12, 2019 12:49 pm

I would offer to sell it to the family member at market value - they are responsible for obtaining financing. Shouldn't be that hard if they start with 75% loan-to-value unless they are already deep in debt. Otherwise, sell at auction.

If the family member can't get financing and you are really interested in keeping it in the family, rent it to them at market rate (can be hard to determine) and hold onto it. That might be tough to get everyone to agree to that (though other family members are free to sell on a 20-year 0% loan) while you keep a 25% stake.

texasdiver
Posts: 3015
Joined: Thu Jun 25, 2009 12:50 am
Location: Vancouver WA

Re: Inherited ranch

Post by texasdiver » Sun May 12, 2019 1:31 pm

happymob wrote:
Sun May 12, 2019 12:49 pm
If the family member can't get financing and you are really interested in keeping it in the family, rent it to them at market rate (can be hard to determine) and hold onto it. That might be tough to get everyone to agree to that (though other family members are free to sell on a 20-year 0% loan) while you keep a 25% stake.
Equally bad idea. This is what my mother's family did with land in PA. In 20 years that 4-way split might be an 18-way split with in-laws, 2nd spouses, grandchildren, and so forth all wanting a piece of the pie to which they have no connection and may live a continent away.

User avatar
happymob
Posts: 610
Joined: Wed Nov 18, 2009 4:09 pm

Re: Inherited ranch

Post by happymob » Sun May 12, 2019 1:41 pm

texasdiver wrote:
Sun May 12, 2019 1:31 pm
happymob wrote:
Sun May 12, 2019 12:49 pm
If the family member can't get financing and you are really interested in keeping it in the family, rent it to them at market rate (can be hard to determine) and hold onto it. That might be tough to get everyone to agree to that (though other family members are free to sell on a 20-year 0% loan) while you keep a 25% stake.
Equally bad idea. This is what my mother's family did with land in PA. In 20 years that 4-way split might be an 18-way split with in-laws, 2nd spouses, grandchildren, and so forth all wanting a piece of the pie to which they have no connection and may live a continent away.
This is true. Co-ownership with people on the same page as you is a minor pain, but you might not always be on the same page (and, as you point out, the co-owners may change).

NotWhoYouThink
Posts: 2550
Joined: Fri Dec 26, 2014 4:19 pm

Re: Inherited ranch

Post by NotWhoYouThink » Sun May 12, 2019 1:42 pm

texasdiver wrote:
Sun May 12, 2019 1:31 pm
happymob wrote:
Sun May 12, 2019 12:49 pm
If the family member can't get financing and you are really interested in keeping it in the family, rent it to them at market rate (can be hard to determine) and hold onto it. That might be tough to get everyone to agree to that (though other family members are free to sell on a 20-year 0% loan) while you keep a 25% stake.
Equally bad idea. This is what my mother's family did with land in PA. In 20 years that 4-way split might be an 18-way split with in-laws, 2nd spouses, grandchildren, and so forth all wanting a piece of the pie to which they have no connection and may live a continent away.
All good points from texasdiver. Sorry to hear about your experiences, hope they can help others.

The bank knows more about your relative's finances and payment history than you do. If they won't lend there is a reason. Give it away or force a sale, but get it over with.

MotoTrojan
Posts: 4924
Joined: Wed Feb 01, 2017 8:39 pm

Re: Inherited ranch

Post by MotoTrojan » Sun May 12, 2019 2:03 pm

Bones72 wrote:
Sun May 12, 2019 11:24 am
Advice needed. Parents have passed. Small (400) acres of ranch land to be split 4 ways. One branch of family wishes to purchase it, which is fine. However, they want to pay it out to the other heirs over 20 years, no interest. Thoughts? Advice? This has already caused a split n the family. The price offered is fair, below market value, but its family. The 20 year payment is uncomfortable.
Absurd. Would love to hear their rationale.

User avatar
Watty
Posts: 16465
Joined: Wed Oct 10, 2007 3:55 pm

Re: Inherited ranch

Post by Watty » Sun May 12, 2019 2:42 pm

texasdiver wrote:
Sun May 12, 2019 1:31 pm
Equally bad idea. This is what my mother's family did with land in PA. In 20 years that 4-way split might be an 18-way split with in-laws, 2nd spouses, grandchildren, and so forth all wanting a piece of the pie to which they have no connection and may live a continent away.
You may also have trouble even finding some of the 18 people since some of them may be people like widowed spouses of relatives or someones unrelated buddy that they left their estate to since they did not have kids.

Pu239
Posts: 95
Joined: Mon Dec 17, 2018 6:24 pm

Re: Inherited ranch

Post by Pu239 » Sun May 12, 2019 2:46 pm

I wouldn't do a 20 year no interest loan to family. You are already extending a gift to them in the way of a below market price. As has been pointed out, there are other complications with trusting them to make regular payments. Furthermore, the IRS might view the 0% rate as a taxable gift (?). Too many risks that could cause family friction beyond what you're currently experiencing now. Deal with it now, not over 20 years.

mpnret
Posts: 174
Joined: Sun May 20, 2018 9:16 am

Re: Inherited ranch

Post by mpnret » Sun May 12, 2019 3:23 pm

No way do a 20 year interest free loan to a family member. You are looking for trouble. If for some reason you are really looking to make nice with the family figure out the value of that loan and discount the property that amount. I would only do a small piece of that amount if that is even necessary but don't have family owing you money. Things happen, things change.

User avatar
Meaty
Posts: 680
Joined: Mon Jul 22, 2013 7:35 pm
Location: Texas

Re: Inherited ranch

Post by Meaty » Sun May 12, 2019 3:43 pm

Agree with many above; 20 years is unreasonable. Either they purchase it like any other buyer or have the property partitioned and sold to a 3rd party.
"Discipline equals Freedom" - Jocko Willink

edgeway
Posts: 14
Joined: Thu Nov 15, 2018 3:00 pm

Re: Inherited ranch

Post by edgeway » Sun May 12, 2019 3:47 pm

Pu239 wrote:
Sun May 12, 2019 2:46 pm
I wouldn't do a 20 year no interest loan to family. You are already extending a gift to them in the way of a below market price. As has been pointed out, there are other complications with trusting them to make regular payments. Furthermore, the IRS might view the 0% rate as a taxable gift (?). Too many risks that could cause family friction beyond what you're currently experiencing now. Deal with it now, not over 20 years.
This. Zero percent loan for that long would absolutely be viewed as a gift. It's a pretty absurd request anyway.

User avatar
WWJBDo
Posts: 35
Joined: Mon Aug 20, 2018 9:43 am
Location: San Diego

Re: Inherited ranch

Post by WWJBDo » Sun May 12, 2019 3:49 pm

Absolutely do not lend the money. It's far far better to give a gift and be pleasantly surprised if they return it than to ruin a family connection or friendship with a loan gone bad. Givne that they own 25%, it should be pretty straightforward to get a loan from a bank. If they cannot find a bank, that's a giant red flag for the rest of the family as potential lenders as well. It's sad but true that many people are more likely to stiff family than a bank.

If you want to give them a discount for the price, that's very nice of you but I would encourage you to include a clause that allows the family to either buy it back or share in whatever profit occurs if it is sold within X (say, 5) years. That way, the new owners of the family ranch don't have an incentive to sell and make off with a profit that you created for them through your generosity. They should be ok with such a clause if they are not intending to sell. If they balk at such a clause, you have to ask yourself 'why?'.

Good luck. Feel good if you want to give a discount, but don't make a long term arrangement and expect things to work out well.
"It is difficult to get a man to understand something when his salary depends upon his not understanding it." Upton Sinclair

togb
Posts: 179
Joined: Mon Oct 23, 2017 8:36 pm

Re: Inherited ranch

Post by togb » Sun May 12, 2019 4:27 pm

The executor is responsible for having the property appraised to establish the fair market value as of the date of death. If this has not been done, prompt him/her. See if there is anything in the will about terms of inheritance, or how it would be sold.

You can either sell it from the estate to whoever-- or you can retitle it to the ownership of those of you who inherited it. In that case you have to decide if the 4 of you jointly own ALL if it (this is more typical) or whether it can be divided up into four parcels of equal value (this can be hard).

Until you cover the basics of establishing fair market value, and whether all four of you want to sell, or keep, and any terms of the will that impact either of those.... don't entertain random ideas. Selling within family is fine, if all agree. Selling for below market value, if it saves some of the realtor commission is fine if all agree. Selling below market value on a 20 year no interest payment plan is not a reasonable request.

Back up to the first steps. And be cautioned that owning property jointly with family can be frustrating/difficult (speaking from experience). Any decision to sell should follow an appraisal. And any sale involves signing over property in exchange for a check. Just my 2 cents worth.

User avatar
WestUniversity
Posts: 223
Joined: Sat Oct 07, 2017 7:27 am

Re: Inherited ranch

Post by WestUniversity » Sun May 12, 2019 5:14 pm

Sounds problematic. I wouldn’t do it..,

User avatar
8foot7
Posts: 1484
Joined: Mon Jan 05, 2015 7:29 pm

Re: Inherited ranch

Post by 8foot7 » Sun May 12, 2019 5:48 pm

+1. Banks want to lend money so let them. A discount of 6% (real estate commmission) perhaps rounded up to 10% is defensible and may be appropriate given the ease of sale. This gives the buyer (10% of 75% = 7.5 + 25 =) 32.5% equity which should make the loan even easier to obtain.

stoptothink
Posts: 5720
Joined: Fri Dec 31, 2010 9:53 am

Re: Inherited ranch

Post by stoptothink » Sun May 12, 2019 6:36 pm

texasdiver wrote:
Sun May 12, 2019 12:19 pm
Don't do it.

My mother was in this exact same situation except it was 5 siblings and a 5-way split.

In 20 years all manner of craziness can happen. In my mother's case her sister married an abusive controlling psycho, had 3 kids in close succession, and then died leaving the abusive psycho in-law with a seat at the table where no one wanted him, making all kind of abusive and unreasonable demands on the rest of the family.

The strategy I think was to be the world's largest a**hole so that everyone else would just pay him to go away, but then he was too paranoid to actually take the money and go away because he thought he was somehow being taken advantage of. So they were chained to him. Then he died and they had the 3 children to deal with. One was a normal girl in nursing school. One was a boy living in Dad's trailer in Florida stockpiling guns and working at a string of fast food jobs. The third daughter took up with some older survivalist religious nut she met online and moved to Quebec. The land was in PA but none of these 3 had ever actually been within 500 miles of it.

Do whatever it takes to make a clean separation.
My mother has a somewhat similar story. The entire family, 7 siblings, got totally screwed by the youngest (who just so happened to be adopted), twice: when my grandfather passed and then when my stepgrandmother passed about a decade later. The backhanded deals and empty promises of my aunt pretty much destroyed the family. You don't give deals because it is family.

dbr
Posts: 29442
Joined: Sun Mar 04, 2007 9:50 am

Re: Inherited ranch

Post by dbr » Sun May 12, 2019 6:38 pm

I think the family making the offer sees the offer as a reasonable proposal and do not see all the reasons it doesn't make any sense because they aren't thinking straight.

prairieman
Posts: 128
Joined: Thu Mar 01, 2018 3:17 pm

Re: Inherited ranch

Post by prairieman » Sun May 12, 2019 6:46 pm

I will some day face a similar situation and have given it some thought. My inclination is to sell the property. If a sentimental sibling wishes to bid, they sure can. If some siblings want to cut a deal to siblings, they can do that, too. This is the only real way to be totally fair to all involved. What is the market value? How much are all involved driven by sentiment? I, personally, would tend to cut a deal to a sibling, but do not want to over-rule siblings who might not be inclined the same way. I would, however, veto (if I can) any long-lasting deal that involves loans between siblings.

User avatar
8foot7
Posts: 1484
Joined: Mon Jan 05, 2015 7:29 pm

Re: Inherited ranch

Post by 8foot7 » Sun May 12, 2019 6:49 pm

One other thought: are any one, two, or all three of you actually willing to foreclose your interest in the land if, for whatever reason, payments stop being made? Perhaps more importantly, what happens when one siblings needs the repayments and wants to foreclose, and another sibling disagrees and wants to give it time?

iudiehard1
Posts: 20
Joined: Thu Mar 14, 2019 1:40 pm

Re: Inherited ranch

Post by iudiehard1 » Sun May 12, 2019 6:55 pm

One more in the “heck no” camp. I would go with the, “We are really happy that this acreage gets to stay in the family. So much so, we are willing to sell it below market value to however wishes to fully buy the others out in full at time of close. We are heirs to the property, not heirs to the financing. I have things I need to do to set my family and future up and financing land isn’t in those plans”.

You are the sane one here, if you participate in the financing.....then you become the insane.
Proverbs 13:20 - Walk with the wise and become wise, for a companion of fools suffers harm.

CnC
Posts: 707
Joined: Thu May 11, 2017 12:41 pm

Re: Inherited ranch

Post by CnC » Sun May 12, 2019 7:03 pm

Unlike most people here I would certainly be for selling to family. Because coming from a farm family nothing is more crushing to parents or farm families is some kid who moved off and wants to cash out the family farm causing his or her siblings to lose the family farm to some big corporation.

But, you need at least 2 or 3 things.

1) Rock solid contract for payments. As in actual contract for deed.
2) not 0% interest and below market value combined. That is unfair to you.
3) A Frank and open conversation, possibly see if your portion can be split off. Also what did your parents want? How legitimate and honest is your family?

To all the people saying sell off everything at an auction, I take it you don't come from land owning families or have moved far away from your roots if you grew up with land.

User avatar
arcticpineapplecorp.
Posts: 4192
Joined: Tue Mar 06, 2012 9:22 pm

Re: Inherited ranch

Post by arcticpineapplecorp. » Sun May 12, 2019 7:14 pm

Bones72 wrote:
Sun May 12, 2019 11:24 am
Advice needed. Parents have passed. Small (400) acres of ranch land to be split 4 ways. One branch of family wishes to purchase it, which is fine. However, they want to pay it out to the other heirs over 20 years, no interest. Thoughts? Advice? This has already caused a split n the family. The price offered is fair, below market value, but its family. The 20 year payment is uncomfortable.
don't do what makes you uncomfortable.

the way I see it, they're already getting a break by you selling it below fmv to them. Why do they feel they need/deserve more than that? Why would they expect to pay no interest for 20 years? Would they ask a bank to accept that? No. It's because you're family. Well, that seems like they're taking advantage of family if you ask me.

Do they understand you could take the money now by selling the property 4 ways (on public market) and you could invest your portion and earn interest for the next 20 years?

The only way this would be semi-logical is if they couldn't secure a bank loan to pay off the other 3 family members. But even then, you should charge them interest, you could even charge lower interest than a bank, but not nothing. That's just greedy in my opinion.

If they aren't happy enough with getting the property below FMV, sounds like they'll never be happy unless they get the moon.

Tell them to get a mortgage and buy out the other three. If they can't do that, they can't afford the property. period. And it's time for the 4 to sell and split the proceeds evenly.

sorry about your loss. Death makes family do strange things.
"May you live as long as you want and never want as long as you live" -- Irish Blessing | "Invest we must" -- Jack Bogle

mnnice
Posts: 426
Joined: Sat Aug 11, 2012 5:48 pm

Re: Inherited ranch

Post by mnnice » Sun May 12, 2019 8:14 pm

CnC wrote:
Sun May 12, 2019 7:03 pm
Unlike most people here I would certainly be for selling to family. Because coming from a farm family nothing is more crushing to parents or farm families is some kid who moved off and wants to cash out the family farm causing his or her siblings to lose the family farm to some big corporation.

But, you need at least 2 or 3 things.

1) Rock solid contract for payments. As in actual contract for deed.
2) not 0% interest and below market value combined. That is unfair to you.
3) A Frank and open conversation, possibly see if your portion can be split off. Also what did your parents want? How legitimate and honest is your family?

To all the people saying sell off everything at an auction, I take it you don't come from land owning families or have moved far away from your roots if you grew up with land.
People fetishize family farms. In modern 21 Century America 400 acres of ranch land is highly unlikely to be large enough to a business large enough to support a family.

It doesn’t mean you don’t respect your roots or the land of you want to sell. I would guess the party in question has known for awhile that the older generation was going to die and that maybe he or she should have had a plan to buy the other heirs out.

I have noticed in these deals that often the brokest member of the family that gets all sentimental and wants it.

dbr
Posts: 29442
Joined: Sun Mar 04, 2007 9:50 am

Re: Inherited ranch

Post by dbr » Sun May 12, 2019 9:05 pm

CnC wrote:
Sun May 12, 2019 7:03 pm
Unlike most people here I would certainly be for selling to family. Because coming from a farm family nothing is more crushing to parents or farm families is some kid who moved off and wants to cash out the family farm causing his or her siblings to lose the family farm to some big corporation.

But, you need at least 2 or 3 things.

1) Rock solid contract for payments. As in actual contract for deed.
2) not 0% interest and below market value combined. That is unfair to you.
3) A Frank and open conversation, possibly see if your portion can be split off. Also what did your parents want? How legitimate and honest is your family?

To all the people saying sell off everything at an auction, I take it you don't come from land owning families or have moved far away from your roots if you grew up with land.
I sympathize with this. The problem in the proposal is that the folks that want the land don't seem to be proposing a sensible deal including for example the elements you suggest. I guess a problem is when we read something that sounds like it is trying to be a rip off we assume it is trying to be a rip off, but we don't know this family. One would need to understand where the below market/no interest proposal is coming from. Are they serious? Maybe they figure the property will still be used by the siblings -- hunting or fishing or something. I also don't really get a 400 acre ranch. I wonder where that is.

Wricha
Posts: 458
Joined: Sun Mar 25, 2012 10:33 am

Re: Inherited ranch

Post by Wricha » Mon May 13, 2019 3:08 am

CnC wrote:
Sun May 12, 2019 7:03 pm
Unlike most people here I would certainly be for selling to family. Because coming from a farm family nothing is more crushing to parents or farm families is some kid who moved off and wants to cash out the family farm causing his or her siblings to lose the family farm to some big corporation.

But, you need at least 2 or 3 things.

1) Rock solid contract for payments. As in actual contract for deed.
2) not 0% interest and below market value combined. That is unfair to you.
3) A Frank and open conversation, possibly see if your portion can be split off. Also what did your parents want? How legitimate and honest is your family?

To all the people saying sell off everything at an auction, I take it you don't come from land owning families or have moved far away from your roots if you grew up with land.
You are right about the guilt trip families can lay on you about the “family farm” it can be overwhelmingly. We also have/had this same issue, over 4 now 5 generations. As the generations get more distance the land has less sentimental attachment. At some point it is just a transaction irrespective what grandpa did on this land. You have given the family a break on the price (nice guy) how did that work for everyone? Honestly, it is just a transaction, treat it this way and no will be happy but everyone will be treated fairly. Any other way will have resentment (that will transcend generations) and no one will have been treated fairly.

cherijoh
Posts: 5778
Joined: Tue Feb 20, 2007 4:49 pm
Location: Charlotte NC

Re: Inherited ranch

Post by cherijoh » Mon May 13, 2019 4:54 am

mnnice wrote:
Sun May 12, 2019 8:14 pm
I have noticed in these deals that often the brokest member of the family that gets all sentimental and wants it.
Cynical, but probably true.

OP - what does the family member wanting to keep the land plan to do with it? Was the land being used productively by the previous generation?

Over the time I've lived in Charlotte, farm land surrounding the ever-expanding city has been sold to developers for building new upscale neighborhoods. How remote is the ranch? Is this a possible motive for your family member who wants the land?

likegarden
Posts: 2853
Joined: Mon Feb 26, 2007 5:33 pm

Re: Inherited ranch

Post by likegarden » Mon May 13, 2019 6:02 am

The parents who died did not seem to insist that the farm should stay in the family, because then they would have selected a single heir to the farmland in their will. I read sometimes that a single heir to a farm was selected, others got little. So this one of four heirs in this case wants something the parents did not intend.

User avatar
8foot7
Posts: 1484
Joined: Mon Jan 05, 2015 7:29 pm

Re: Inherited ranch

Post by 8foot7 » Mon May 13, 2019 6:33 am

likegarden wrote:
Mon May 13, 2019 6:02 am
The parents who died did not seem to insist that the farm should stay in the family, because then they would have selected a single heir to the farmland in their will. I read sometimes that a single heir to a farm was selected, others got little. So this one of four heirs in this case wants something the parents did not intend.
I would have thought the opposite, actually: leaving the farm to one heir, unless that person expressed an interest in running it, would make it more likely it'd be sold, but leaving it to four family members equally seems to make it "stickier" within the family.

That said, I love my parents to pieces, but I have no interest in a farm, and their intent for me to be interested in their farm would be just that: intent. I'd be selling it and I would figure out a way to honor them and their work, but it wouldn't be through a farm.

togb
Posts: 179
Joined: Mon Oct 23, 2017 8:36 pm

Re: Inherited ranch

Post by togb » Mon May 13, 2019 8:52 am

My family has dealt with two of these situations. The first was when my grandmother got tired of paying taxes on a property (homestead with acreage) that had been used only for weekends, summers etc. She left it to all the children equally, knowing the children did not play well together. Some paid their share of taxes, others were left to pay the rest. None cared to deal with each other over it. Eventually all agreed to sell, and all were relieved. The homestead part was sold separately to one child, who loved the place-- but the poorest child was angry, hurt and offended about this. She could not afford it, but was angry. The purchaser allowed the angry sibling to use the property freely. There was still a lawsuit and hard feelings. All in all, a big mess. I don't think my grandmother was unaware this was how things would pan out.. she liked to stir things up for fun.

A few years later, one of those same children (my mother) who lived through the mess left her own two children, and one grandchild (minor) a rental property, equally. It was not even legal for the grandchild to inherit real estate since no guardian was named. Titling was hard, and a trust had to be formed for the minor child. The property was out of state for all those who inherited it, and needed a lot of work. One wanted to sell, the other did not, so they could not. Much time and $$ required to get things on track. Impacts to three tax returns every year. Eventually sold the property and moved on. I was one of those who inherited the rental property and to own my own properties, and have them close by. I used proceeds to do just that, so what my mother left me in concrete, identifiable but not the same address as the actual property she left us.

My advice? Go "by the book". Be fair, above board, and avoid side deals. Do the whole thing keeping in mind how the chain of events and documentation will look to a judge.

User avatar
Abe
Posts: 1944
Joined: Fri Sep 18, 2009 5:24 pm
Location: Earth in the Milky Way Galaxy

Re: Inherited ranch

Post by Abe » Mon May 13, 2019 9:21 am

I have not read all the post so this may already have been covered: If you finance at zero interest you still will have to pay taxes on imputed interest.
Imputed Interest refers to interest that is considered by the IRS to have been paid for tax purposes, even if no interest payment was made. The IRS uses imputed interest as a tool to collect tax revenues on loans that don't pay interest, or stated interest is very low.
Slow and steady wins the race.

not4me
Posts: 597
Joined: Thu May 25, 2017 3:08 pm

Re: Inherited ranch

Post by not4me » Mon May 13, 2019 9:26 am

OP, 1st sorry for loss of parents – these situations are tough at best. All situations are different, but have similarities. I’ll share an approach that I know worked in 1 case.

To a degree, the amount of money isn’t the issue – it is the emotions. On the other hand, the amount of money may be more material to some than others. I agree with others that an appraisal is needed for future reference if nothing else. I didn’t see mention of certain facts that might be of interest. Is this the majority of the estate? How much income can be expected annually (either based on past use or future)? What about the next generation – is this just delaying the inevitable?

I also need to say early on that I would not favor joint ownership at all. But, perhaps would consider it depending upon the material impact on my finances and/or parents wishes. My comments are really around the “What if…” & possibly around explaining “why” to the one hold out. I assume they are not oriented to thinking thru business deals.

Basically, start with the amount of $ that you already have inherited tax free. So, if appraisal came back at $100, you have $25. Then look at net present value over 20 years – including annual after tax income, land appreciation, etc. Income from all sources. When the appraisal is done, they might help with determining future value. That is really what you are being asked to finance.

I wasn’t clear on the details of the proposal, but you need asset protection – call it loan collateral perhaps. Someone may correct me, but I believe the IRS will require you to pay income tax on the interest you would have received if you really give an interest free loan. So, perhaps apply discount only on the loan size & not on interest rate (IRS has a minimum for such deals, but it changes & that would need to be considered). If you did a “mortgage”, you might be able to place a lien on the property. That is only part of asset protection of course. But clarify what is being proposed for legal ownership in the out lying years.

I would include costs for a lawyer/cpa to have a solid deal that protects all parties.

Once it is laid out, I’ve seen some have a better appreciation & more willing to negotiate. Others won’t listen to the 2nd word if they heard the 1st.

Other options would be to consider a neighbor buying a portion of the land, if it can be divided. Then the amount being financed would be greatly reduced. I doubt this will be acceptable, but could add pressure.

Good luck!

User avatar
augryphon
Posts: 81
Joined: Wed Mar 02, 2016 11:35 am

Re: Inherited ranch

Post by augryphon » Mon May 13, 2019 9:37 am

Bones72 wrote:
Sun May 12, 2019 11:24 am
Advice needed. Parents have passed. Small (400) acres of ranch land to be split 4 ways. One branch of family wishes to purchase it, which is fine. However, they want to pay it out to the other heirs over 20 years, no interest. Thoughts? Advice? This has already caused a split n the family. The price offered is fair, below market value, but its family. The 20 year payment is uncomfortable.
Very sorry for the loss of you parents and the split the sale has already caused. I've seen this cause rifts in my own family and have another situation on the horizon.

Let's flip the question. Suppose you had $100k cash, would you join 3 siblings buying a ranch for $400k, then sell your part to one sibling for $85k and finance it interest-free for 20 years?

That simplifies the situation for me. Hope it helps you, Good Luck!

User avatar
BL
Posts: 8994
Joined: Sun Mar 01, 2009 2:28 pm

Re: Inherited ranch

Post by BL » Mon May 13, 2019 11:29 am

I think the general consensus is to avoid the loan between family members.

This problem makes me wonder what the parents could have done to make it easier for their children (actually, a personal question here also with no anticipation of serious disagreements among the children or plans to keep the land by any of them. No concern about controlling actions by children including divorce, lawsuits, squandering, etc.)
1. Selling all before death would avoid the problem but too much Capital Gains.
2. Setting up Payable on Death Deed for 3 children jointly.
3. Setting up to have it go to a trust with executor.
4. Distribute by will only.
5. Other

masha12
Posts: 57
Joined: Tue Jan 24, 2017 2:34 pm

Re: Inherited ranch

Post by masha12 » Mon May 13, 2019 11:59 am

Note that no one here is telling you this is a good idea.

If there is already conflict, there is no “good” option here. Either way, the sibling that wants the ranch is going to be bitter. Bitter that you didn’t sell to them at a discount with an interest-free loan, or bitter that they owe you money (people who expect financial favors because “faaamiily” generally aren’t grateful for said favors because they view them as an entitlement not a favor).

You can’t have any expectation that you can do anything with regards to this deal to preserve a healthy sibling relationship. Your choice is to have someone bitter because you did them a favor or bitter because you didn’t.

Choose wisely.

Post Reply