288/Maths Question on Splitting Estate

[phdhorn 6224]

Maybe this is so simple I'm missing it, but before I go bother my CPA/Estate lawyer buddies, I figure I'd run it by here first, besides e'rrbody on the Sur is an expert in e'rrything anyway.

Heir situation.  State (not TX although I would imagine it's the same) mandates that unless other specified in will (which it wasn't), all disbursements of estate go to each heir equally (common sense).  I.e. there are 3 heirs, if the estate pays out $300K, each gets $100K.  So far so good, yeah that's aggy-level maths.

However,  say one heir paid out of pocket while estate was being improved (i.e. fixing up house for sale).  All agreed that after disbursement, which again is mandated at equal portions, the appropriate heir would be paid back by the others with appropriate adjusting of their payouts.  I.e. we'll settle all that after we each get our equal portion from the State, and pay back whoever used their own money to improve the estate.  Again, should be fairly clear.  (For the record, the State doesn't give a shit who does what with their splits after disbursement, it's just that by law since the will mandated it that's how the State has to apportion it).

But here's the situation, and it involves 288 type maths.  Example:  Heir 1 pays $12,000 out of pocket to improve the estate after all agreed he should spend the $.  Heirs 2 and 3 paid nothing to improve estate.  When it comes to final "payup" time, the other 2 heirs owe Heir 1 one-half of that cost, i.e. they both pony up $6,000 each out of their disbursed payout, correct?  This vs. the other 2 heirs paying $4,000 each and assuming Heir 1 paid himself back when he got his portion; in this case although it might seem that Heir 1 "pays himself back" out of the estate money, in reality he's not, since he was in the hole for it anyway.  If one does it that way, Heir 1 gets gypped out of his due share, because he "only" gets $8,000 total back from the other 2 heirs if they only each pay him 1/3 the cost, when they should be each paying him $6,000 (1/2 the total cost).  Otherwise, if he theoretically "pays himself back 1/3 as well) he's shortchanging himself, because he already spent the $12,000 and therefore it should be recovered from the other two's portions.  

In other words with 3 heirs, if someone put in some money before the estate was settled and it's "owed" to them by the other heirs, the other 2 heirs owe the third one-half of that heir's expense taken from their respective portions, not one-third?   

How shaketh out this, Surlies?

Edited January 31, 2019 by phdhorn

[elfenix 34339]

each of the 3 heirs owes $4,000 toward the improvement.  the one paid $12,000, so is due a credit totaling $8,000, or $4,000 from each of the others.  that way, each one of the heirs is out $4,000.

Edited January 31, 2019 by elfenix

[bernorange 8367]

Why are the two heirs that didn't front the money the ones that need to ultimately shoulder 100% of the improvement cost?  If the property needed 12K in improvements, that money should come from the estate IMO (ie. burden equally shared by all three heirs).  The heir who fronted the money should expect some reasonable interest return on his loan to the estate, but I expecting the other two heirs to cover 4K of his/her 33% share of the 12K total seems a bit high.  JMHO.

[Cheeseweasel 26438]

Someone's gonna get fucked.

[Wally Fairway 5590]

In reality the estate should pay back the full $12,000 before the corpus is disbursed.

So lets say that the estate is worth $300,000, and #1 paid $12,000 for the benefit of the estate.

In your scenario
#1 puts $12,000 in, estate pays out $100,000, #1 receives 12,000 ($6,000 each from #2 and #3) so he nets $100,000
#2 puts $0 in, estate pays out $100,000, pays $6,000 to #1, nets $94,000
#4 puts $0 in, estate pays out $100,000, pays $6,000 to #1, nets $94,000

Easiest way is to have the estate reimburse #1 the $12,000, then the estate has $288,000 and each party receives $96,000.

The beneficiaries should not settle with each other as that actually complicates the maths. Have the estate pay all the legal fees, court costs, etc and then payout.
Also the executor should be compensated a reasonable rate for their work, and in something like this case someone who is providing services or materials for the benefit of the estate should be repaid - whether they are a beneficiary or not.

This is very simplified, as life gets much more complicated when non-liquid assets are being settled (Real Estate, partnerships, etc)

 

[hornbri 1418]

52 minutes ago, Wally Fairway said:

In reality the estate should pay back the full $12,000 before the corpus is disbursed.

So lets say that the estate is worth $300,000, and #1 paid $12,000 for the benefit of the estate.

In your scenario
#1 puts $12,000 in, estate pays out $100,000, #1 receives 12,000 ($6,000 each from #2 and #3) so he nets $100,000
#2 puts $0 in, estate pays out $100,000, pays $6,000 to #1, nets $94,000
#4 puts $0 in, estate pays out $100,000, pays $6,000 to #1, nets $94,000

Easiest way is to have the estate reimburse #1 the $12,000, then the estate has $288,000 and each party receives $96,000.

The beneficiaries should not settle with each other as that actually complicates the maths. Have the estate pay all the legal fees, court costs, etc and then payout.
Also the executor should be compensated a reasonable rate for their work, and in something like this case someone who is providing services or materials for the benefit of the estate should be repaid - whether they are a beneficiary or not.

This is very simplified, as life gets much more complicated when non-liquid assets are being settled (Real Estate, partnerships, etc)

 

This is exactly how you should do it. 

[HOOKEM4 5044]

How are you going to invest it? I would invest half of it in various mutual funds and take the other half over to my friend Asadulah who works in securities.

[phdhorn 6224]

20 hours ago, Wally Fairway said:

In reality the estate should pay back the full $12,000 before the corpus is disbursed.

So lets say that the estate is worth $300,000, and #1 paid $12,000 for the benefit of the estate.

In your scenario
#1 puts $12,000 in, estate pays out $100,000, #1 receives 12,000 ($6,000 each from #2 and #3) so he nets $100,000
#2 puts $0 in, estate pays out $100,000, pays $6,000 to #1, nets $94,000
#4 puts $0 in, estate pays out $100,000, pays $6,000 to #1, nets $94,000

Easiest way is to have the estate reimburse #1 the $12,000, then the estate has $288,000 and each party receives $96,000.

The beneficiaries should not settle with each other as that actually complicates the maths. Have the estate pay all the legal fees, court costs, etc and then payout.
Also the executor should be compensated a reasonable rate for their work, and in something like this case someone who is providing services or materials for the benefit of the estate should be repaid - whether they are a beneficiary or not.

This is very simplified, as life gets much more complicated when non-liquid assets are being settled (Real Estate, partnerships, etc)

 

I fully agree that this is what would be the best scenario, but this particular State don't give no shits.  They mandate that the terms of the will be met exactly, i.e. the beneficiaries all equally get the payout (after one of them, Executor, gets their cut - that's the only thing).

The rest is "elective" - that is, the heir who put in $ to improve the estate is basically not the business/concern of the Register of Wills... in their mind it's 'the heirs' business, they can figure it out after we pay out."  It would be much better if the State did allow for this, but they don't.

But - starting this thread resulted in a good idea.. what's probably going to happen is that: 1) the heirs get paid out equally (check(s) from the State), 2) then immediately turn their checks over to the Executor heir... who will pool all of the money.  3) Then the Executor will essentially do the simplest thing... first pay out each heir's separate claim(s) of any out-of-pocket improvements on the estate before sale, then 4) after all individual claims have been satisfied, split the rest into 3 equal parts and write the big checks.  That's really the only way to do it without problems.

Edited February 1, 2019 by phdhorn

[52-80 19271]

i was told there would be no will

[NeverMarryAStripper 21964]

If there are three heirs and total costs of $12,000 then each heir should pay 1/3, or $4,000, of the costs.  If each of the heirs that didn't pay anything reimburse the other heir $4,000 then each heir has paid his share.  It's really not complicated.  If the other two heirs reimburse $6,000, then the first heir gets completely reimbursed and ends up with a free ride, like Edgar Winter.  It's like some of you people took aggy math.

[HouTex 1894]

This thread reminds of guys that go on a weekend fishing/hunting/golf trip and can't figure out how to divide up the costs at the end. I'm always shocked by the people who honestly believe that, to use this example, the two hiers should each pay $6,000 to make it even. I usually end up taking it over and sending around a simple excel spreadsheet that lays it out.

[luke duke 6414]

Tell the fucker that died to maintain their property so as to avoid future squabbles between his/her mathematically challenged heirs.

 

[TwiceHorn 31582]

5 hours ago, phdhorn said:

I fully agree that this is what would be the best scenario, but this particular State don't give no shits.  They mandate that the terms of the will be met exactly, i.e. the beneficiaries all equally get the payout (after one of them, Executor, gets their cut - that's the only thing).

The rest is "elective" - that is, the heir who put in $ to improve the estate is basically not the business/concern of the Register of Wills... in their mind it's 'the heirs' business, they can figure it out after we pay out."  It would be much better if the State did allow for this, but they don't.

But - starting this thread resulted in a good idea.. what's probably going to happen is that: 1) the heirs get paid out equally (check(s) from the State), 2) then immediately turn their checks over to the Executor heir... who will pool all of the money.  3) Then the Executor will essentially do the simplest thing... first pay out each heir's separate claim(s) of any out-of-pocket improvements on the estate before sale, then 4) after all individual claims have been satisfied, split the rest into 3 equal parts and write the big checks.  That's really the only way to do it without problems.

Still, the orderly way to do this is for the heir that came out of pocket to submit a claim to the estate for reimbursement.

The expense may or may not be reimbursable by the estate, but the agreement of the other heirs is evinced by their lack of objection and encouragement of the executor to pay the expense and distribute per capita after.

Also, in most states, the "register of wills" or other authority (probate court) gives no fucks what the executor does with respect to the will, but the probate and estate laws give the heirs, creditors, and other interested parties causes of action (lawsuits and claims) against the executor who doesn't follow the law. So, if they don't mind, it don't matter.

Edited February 1, 2019 by TwiceHorn

[kmac30 416]

You’re looking at reimbursing the 12k first as paying the heir wrong. Look at is as a bill to the estate. Pretend the 12k is an invoice from a 3rd party. Pay that invoice first as you would any other bill. I would assume any state would do things this way - estate pays debts before paying heirs.

Then, pay the heirs according to the will.

[Huckleberry 33115]

Every single poster on this thread who said "maths" deserves a negging. This is The United States of by God America and my ancestors didn't help kick British ass just for me to still have to read you fuckers say that instead of "math."

[Wally Fairway 5590]

16 hours ago, Huckleberry said:

Every single poster on this thread who said "maths" deserves a negging. This is The United States of by God America and my ancestors didn't help kick British ass just for me to still have to read you fuckers say that instead of "math."

Welcome to shaggy surly - you must be new here.

[Fred Willard 115]

PhD, huh? Our education system just hit an all time low.

[SquishMitten 10444]

You’re over complicating it. If the law is exactly as you say - which I doubt because I’ve never seen a law that didn’t provide for debts/costs being paid out first - you can still create the same result after the fact. Get yourself a spreadsheet, take the total amount of the estate payout, subtract the investment, and divide the remainder by three. On paper, you now have what each should receive at the end of the day. The investor gets his $12k back and everyone takes their third. 

[TwiceHorn 31582]

The thing that you are failing to account for is that if the non-paying heirs pay the paying heir their share prior to distribution, then ALL three heirs would have a claim against the estate.

So paying heir pays $12000, gets reimbursed $4k each from the other two, they each now have a $4k claim against the estate.

The critical legal issue is whether the expenditure of $12k is legally reimbursable by the estate.  Assuming that it wasn't gratuitous (a gift) and benefitted the estate mostly dollar for dollar, and especially if the heirs don't contest it, it should be an allowable expense.

[NeverMarryAStripper 21964]

If they each pay $4,000 it doesn’t matter whether they have a claim against the estate or not because you end up in the exact same position. You people are making this much more complicated than it needs to be. You should hire an estate attorney to sort it all out. After he bills the estate $300,000 you won’t have to worry about making the distributions come out equal.

[TwiceHorn 31582]

WE aren't.  PhD is.

[Okie State 3848]

I'm in a similar situation where I've been fronting the money to cover property taxes and insurance while everything gets settled. I've been told I will submit receipts to be reimbursed first and then the remaining balance will be paid out equally. Maybe it varies by state or maybe I've been misinformed. I just want this shit over with so I can stop pissing money down the drain.

[TwiceHorn 31582]

3 minutes ago, Okie State said:

I'm in a similar situation where I've been fronting the money to cover property taxes and insurance while everything gets settled. I've been told I will submit receipts to be reimbursed first and then the remaining balance will be paid out equally. Maybe it varies by state or maybe I've been misinformed. I just want this shit over with so I can stop pissing money down the drain.

That should be fairly standard from state to state.. If you didn't do it the executor might have to liquidate some things on unfavorable terms in order to preserve the asset. 

 

Where there's trouble is when you do it when the testator is still alive (gift?) or it could be termed self benefiting. Or worst of all where there aren't enough assets to cover everything and make distributions. 

Edited February 3, 2019 by TwiceHorn

[Nivek 16992]

You’re over complicating it. If the law is exactly as you say - which I doubt because I’ve never seen a law that didn’t provide for debts/costs being paid out first - you can still create the same result after the fact. Get yourself a spreadsheet, take the total amount of the estate payout, subtract the investment, and divide the remainder by three. On paper, you now have what each should receive at the end of the day. The investor gets his $12k back and everyone takes their third. 

My family went through a protracted estate and trust battle. Basically it works like the poster above stated. The executor started investing in the home improvement and ran the funds low and had to keep pouring in his own money to the project. Some of the other heirs objected, but they weren’t the executor.

Home was eventually sold for a loss vs. having just sold it as is. Investor relative got repaid first.

[Okie State 3848]

Speaking of selling at a loss, does anyone here know how the cost basis of the home is determined? I read that it's equal to FMV as of the day the owner died, but not sure how that's determined. My Uncle is the executor and is checking with the lawyer on these questions, but never bad to have more sources of info.

[phdhorn 6224]

Hey, comin' back in.  First, thanks for the help to those who put in a serious answer!  Now for the fun parts:

On 2/1/2019 at 11:54 AM, NeverMarryAStripper said:

If there are three heirs and total costs of $12,000 then each heir should pay 1/3, or $4,000, of the costs.  If each of the heirs that didn't pay anything reimburse the other heir $4,000 then each heir has paid his share.  It's really not complicated.  If the other two heirs reimburse $6,000, then the first heir gets completely reimbursed and ends up with a free ride, like Edgar Winter.  It's like some of you people took aggy math.

 

On 2/1/2019 at 3:29 PM, kmac30 said:

You’re looking at reimbursing the 12k first as paying the heir wrong. Look at is as a bill to the estate. Pretend the 12k is an invoice from a 3rd party. Pay that invoice first as you would any other bill. I would assume any state would do things this way - estate pays debts before paying heirs.

Then, pay the heirs according to the will.

 

20 hours ago, SquishMitten said:

You’re over complicating it. If the law is exactly as you say - which I doubt because I’ve never seen a law that didn’t provide for debts/costs being paid out first - you can still create the same result after the fact. Get yourself a spreadsheet, take the total amount of the estate payout, subtract the investment, and divide the remainder by three. On paper, you now have what each should receive at the end of the day. The investor gets his $12k back and everyone takes their third. 

Thanks for the inputs here.  However, the correct answer turned out to be that the 2 heirs would owe the 3rd heir $6,000 each, not $4,000.  Because although the money stopped being the "estate" money and became the "heirs'" money after disbursement, by prior agreement the heirs are paying back the one who put the $ in with what should have been "estate" money...  The fact that the disbursement is before the heir gets his payback is the reason....

19 hours ago, NeverMarryAStripper said:

You should hire an estate attorney to sort it all out. After he bills the estate $300,000 you won’t have to worry about making the distributions come out equal.

... and this was run by my buddy, an estate lawyer.  And he didn't charge me a penny under $200,000!  Things are looking up!

On 2/1/2019 at 12:22 PM, HouTex said:

This thread reminds of guys that go on a weekend fishing/hunting/golf trip and can't figure out how to divide up the costs at the end. I'm always shocked by the people who honestly believe that, to use this example, the two hiers should each pay $6,000 to make it even. I usually end up taking it over and sending around a simple excel spreadsheet that lays it out.

Remnd me not to go fishing with you.

On 2/1/2019 at 1:20 PM, luke duke said:

Tell the fucker that died to maintain their property so as to avoid future squabbles between his/her mathematically challenged heirs.

I tried, but the dead pretty much ignore advice.  

On 2/1/2019 at 3:36 PM, Huckleberry said:

Every single poster on this thread who said "maths" deserves a negging. This is The United States of by God America and my ancestors didn't help kick British ass just for me to still have to read you fuckers say that instead of "math."

Partially agreed (except for the comic geniuses who start threads with an intentional play upon the word, indirectly making the point you make here), although to be honest, you have no argument whatsoever until the American press stops worrying about what fucking brand of shoes Meghan Markle wears or stops running pics of those fat little Brit kids on page 2 of their media.  Yeah, we know they're cute, hooray.  Now get a life, fat housewives in curlers.

21 hours ago, Fred Willard said:

PhD, huh? Our education system just hit an all time low.

One way we know you're not a PhD is that you just made the most absolutely unoriginal, tired, old, worn-out cliche ever devised by one human against another.  I mean, the Chinese food in Frank Drebbin's refrigerator from Mama Woo's is fresher than that.  But never stop being Surly!

19 hours ago, TwiceHorn said:

WE aren't.  PhD is.

... says the poster who put in 2 relatively long answers (but hey, thanks for the advice, no really! 

Anyway, it's all pretty much settled.  Thanks again!

Edited February 3, 2019 by phdhorn

[ernest_t_bass 1196]

Fuck story problems.  

[TwiceHorn 31582]

31 minutes ago, Okie State said:

Speaking of selling at a loss, does anyone here know how the cost basis of the home is determined? I read that it's equal to FMV as of the day the owner died, but not sure how that's determined. My Uncle is the executor and is checking with the lawyer on these questions, but never bad to have more sources of info.

That is correct. We just used the tax appraised value for the year of death.  Could have probably raised it some with a professional appraisal. Unless you just make shit up, the IRS is unlikely to challenge it. It turned out that the appraisal value that year was quite high. 

[HouTex 1894]

44 minutes ago, phdhorn said:

Hey, comin' back in.  First, thanks for the help to those who put in a serious answer!  Now for the fun parts:

 

 

Thanks for the inputs here.  However, the correct answer turned out to be that the 2 heirs would owe the 3rd heir $6,000 each, not $4,000.  Because although the money stopped being the "estate" money and became the "heirs'" money after disbursement, by prior agreement the heirs are paying back the one who put the $ in with what should have been "estate" money...  The fact that the disbursement is before the heir gets his payback is the reason....

... and this was run by my buddy, an estate lawyer.  And he didn't charge me a penny under $200,000!  Things are looking up!

Remnd me not to go fishing with you.

I tried, but the dead pretty much ignore advice.  

Partially agreed (except for the comic geniuses who start threads with an intentional play upon the word, indirectly making the point you make here), although to be honest, you have no argument whatsoever until the American press stops worrying about what fucking brand of shoes Meghan Markle wears or stops running pics of those fat little Brit kids on page 2 of their media.  Yeah, we know they're cute, hooray.  Now get a life, fat housewives in curlers.

One way we know you're not a PhD is that you just made the most absolutely unoriginal, tired, old, worn-out cliche ever devised by one human against another.  I mean, the Chinese food in Frank Drebbin's refrigerator from Mama Woo's is fresher than that.  But never stop being Surly!

... says the poster who put in 2 relatively long answers (but hey, thanks for the advice, no really! 

Anyway, it's all pretty much settled.  Thanks again!

Damn right I wouldn't go fishing with you!!  You'd pay for everything and get the other two guys to each pay 50% of the total cost.  You'd get a free trip!  

Your initial post assumed equal distribution at the end of the day.  The only way the other two guys paying $6,000 each works is if those two end up getting back $2,000 more from the estate to make up for it.  In your case there's a chance for a distribution from the estate to make everyone whole---not the case in a fishing trip, by the way.  Seems way easier to make everyone equal on the front end vs. having to adjust the final distribution of the estate to make everyone whole.  

[NeverMarryAStripper 21964]

I think to be fair, each of the other heirs should have paid the first heir $12,000. That way each heir would have paid out the same amount.

[CoTex 1162]

This is like arguing with my sister's kids.