Early inheritance for one - how to equalize disbursement?

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g2morrow
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Re: Early inheritance for one - how to equalize disbursement?

Post by g2morrow »

Afty wrote: Fri Feb 14, 2020 12:07 pm Whatever plan you come up with, make sure to run it by all 3 of the siblings (and Mom of course) and get agreement on it. Fairness is subjective, and things will go poorly if one of the siblings thinks the plan is unfair, even if it seems fair to the other 2.
I already figured out long ago I can't make everyone happy so as long as Mom is happy, I'm fine with whatever.
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g2morrow
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Re: Early inheritance for one - how to equalize disbursement?

Post by g2morrow »

Random Poster wrote: Fri Feb 14, 2020 12:51 pm Perhaps I’m just grumpy today, but I think that maintaining family harmony is overrated.

I also think that when one child unilaterally (effectively) changes the deal after the fact, any concern for fairness should be ignored.

So what would I do, given the new information?

Split the inheritance two ways, between the two children that didn’t get the advance inheritance, and cut the sister/daughter out completely.

She had her chance to be honest and fair and she declined to do so. Now (or when mom dies, actually) she gets to face the consequences for doing so. And I’d say so in the will so that if and when a will contest comes, the rationale is made clear to the daughter/sister.
She has already done that to one child and considered it with this one but then decided not to. Personally, I thought it was the right choice.
bryanm
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Re: Early inheritance for one - how to equalize disbursement?

Post by bryanm »

g2morrow wrote: Fri Feb 14, 2020 1:20 pm So I see what you're saying and you're correct, its just slightly more then 123's way. I ran some numbers on a third way mentioned earlier.

IF the early inheritance is 10% of the beginning value of $1mil and the end value of assets is $1.75 mil the new estimated gift would be $175k. This 175k would be given to each brother and the rest ~ 1,750,000- (175,000x2) would be equally divided by 3 which is what the sister gets $466,666.

123's way - early inheritor $402,500 - 23%
bryanm' way - early inheritor $453,000 -25.89%
3rd way - early inheritor $466,666 - 26.67%

So in each calculation, the early inheritor would get a little more money and the last way might be the easiest to dole out and get the least complaints.

My head feels likes its gonna explode - I feel as long as its close to being fair thats good enough. Man, I don't get paid enough for this.
3rd way seems close enough, and if everyone thinks it's fair then more's the better. Kuddos to you for taking on this. Good luck and I hope everyone ends up still happy with one another.
TSR
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Re: Early inheritance for one - how to equalize disbursement?

Post by TSR »

Yuba wrote: Thu Feb 13, 2020 2:32 pm Another option if possible (without a tax impact) is to separate out an account with 2x of the amount the one person got.
Have the beneficiaries on that account be the 2 people who didn't get the early disbursement only.

That way, the regular account would have 3 beneficiaries, and the special account would only have 2. Have the special account be the last account where money is withdrawn from since it was already given to the first person, and should be used last for expenses.

My $0.02 worth.

Rick dba Yuba
The more I read of this thread, the better this option seems to me.
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Doom&Gloom
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Re: Early inheritance for one - how to equalize disbursement?

Post by Doom&Gloom »

TSR wrote: Fri Feb 14, 2020 2:19 pm
Yuba wrote: Thu Feb 13, 2020 2:32 pm Another option if possible (without a tax impact) is to separate out an account with 2x of the amount the one person got.
Have the beneficiaries on that account be the 2 people who didn't get the early disbursement only.

That way, the regular account would have 3 beneficiaries, and the special account would only have 2. Have the special account be the last account where money is withdrawn from since it was already given to the first person, and should be used last for expenses.

My $0.02 worth.

Rick dba Yuba
The more I read of this thread, the better this option seems to me.
+1

As someone who has seen his in-laws faced with a very similar predicament, I wish they had thought of this one.
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g2morrow
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Re: Early inheritance for one - how to equalize disbursement?

Post by g2morrow »

Doom&Gloom wrote: Fri Feb 14, 2020 2:23 pm
TSR wrote: Fri Feb 14, 2020 2:19 pm
Yuba wrote: Thu Feb 13, 2020 2:32 pm Another option if possible (without a tax impact) is to separate out an account with 2x of the amount the one person got.
Have the beneficiaries on that account be the 2 people who didn't get the early disbursement only.

That way, the regular account would have 3 beneficiaries, and the special account would only have 2. Have the special account be the last account where money is withdrawn from since it was already given to the first person, and should be used last for expenses.

My $0.02 worth.

Rick dba Yuba
The more I read of this thread, the better this option seems to me.
+1

As someone who has seen his in-laws faced with a very similar predicament, I wish they had thought of this one.
How could I arrange this as the bulk of her assets are in a single taxable account? I could open another taxable account and do that but her trust would still have to be updated. I dont' think there is any way of getting around that.
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8foot7
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Re: Early inheritance for one - how to equalize disbursement?

Post by 8foot7 »

g2morrow wrote: Fri Feb 14, 2020 10:26 am If my mother goes with the adjusted for time option, my sister will probably be upset. That 110 could grow significantly over time.
Tough cookies would be my answer; the rest of us didn't passively screw over mom and dad.
bryanm
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Re: Early inheritance for one - how to equalize disbursement?

Post by bryanm »

g2morrow wrote: Fri Feb 14, 2020 2:40 pm
Yuba wrote: Thu Feb 13, 2020 2:32 pm Another option if possible (without a tax impact) is to separate out an account with 2x of the amount the one person got.
Have the beneficiaries on that account be the 2 people who didn't get the early disbursement only.
That way, the regular account would have 3 beneficiaries, and the special account would only have 2. Have the special account be the last account where money is withdrawn from since it was already given to the first person, and should be used last for expenses.
My $0.02 worth.

Rick dba Yuba
How could I arrange this as the bulk of her assets are in a single taxable account? I could open another taxable account and do that but her trust would still have to be updated. I dont' think there is any way of getting around that.
Could you just buy other comparable funds to her desired asset allocation? If she has her assets in vanguard funds, but fidelity ETFs or the like. That way the money is still separate but in the same account.
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Re: Early inheritance for one - how to equalize disbursement?

Post by smackboy1 »

g2morrow wrote: Fri Feb 14, 2020 9:50 amYes, I am the executor of her trust. Which puts me in a tough spot. I'm giving advice that would directly benefit me. Should the trust have a 'poison pill' in it about litigation? What other pitfalls should I look out for?
The term you're looking for is "in terrorem" a.k.a "no contest" clause. They are pretty common.

Better still, I would recommend that your mother make her ultimate decision and plans known to all the siblings together while she is alive and competent. That would reduce or eliminate any accusations that you've influenced her to change her plans in your favor.
Disclaimer: nothing written here should be taken as legal advice, but I did stay at a Holiday Inn Express last night.
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Re: Early inheritance for one - how to equalize disbursement?

Post by bayview »

jeffyscott wrote: Fri Feb 14, 2020 10:33 am I am the financial fairness police with our kids, because my mom was the opposite and that created issues among her children. As it happens, we are currently doing exactly this -- one child is getting a partial early inheritance, while 2 others are not (their choice). My method may be more complex than what you and your mother want to do, but here is the short version:

Whatever amount we give Child A as an early inheritance, we will give effective control of the same amount to Child B and and Child C and they may each decide what they want “their money” to be invested in. The money would remain in our accounts, but their share of it would be in a fund or funds of their choosing (or left with the default option, where they just have a proportional share of all of our investments).

The default option is to leave funds invested as they currently are. I determine our overall returns quarterly, so I just apply that return to the deferred gift balance each quarter for B & C. (They both have just left things this way). Balance in B & C "accounts" is tracked on a spreadsheet that all have access to.

So, for example, if we give Child A $50,000, Child B and C would each be assigned $50,000 of our money. Then if that $50,000 grows to, say, $80K before we actually give it to them, they would get $80K each at that time.

I then adjust percentages to each beneficiary on one Roth account to account for this, since child A got after tax money. In addition, if child B & C were given an equal amount now, the money would come out of a tax-deferred account and we would corresponding reduce Roth conversions. So the money they do not take is effectively added to Roth. If child A were given $50,000 and the balance of the indicated Roth were $200K, the child A gets 16.66% ($33,320), while the other two get 41.67% ($83,340). I can change these percentages each quarter.

An easier way to do about the same thing would be to, in this example, put $100,000 in a separate Roth account at the same time $50,000 was given to Child A. Then make the beneficiaries of that Roth account the other two children.

I have no idea about trusts, all our our money will pass via account beneficiaries. The only thing of significance that would be distributed via will is the proceeds from selling our house.
This makes complete sense to me, although in my case, it would be taxable accounts, making things simpler. I had thought of tracking by percentage of total amount earmarked for inheritance, but that doesn’t address the time value of money with different investments.

My late father-in-law simply disbursed the same amount to both kids at the same time, keeping track of it when needed via whichever tax form. So if he and MIL helped one kid with a house down payment, they gave the same amount to the other, even when not asked for.

But that works going forward, not in an attempt to untangle previous actions.
The continuous execution of a sound strategy gives you the benefit of the strategy. That's what it's all about. --Rick Ferri
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g2morrow
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Re: Early inheritance for one - how to equalize disbursement?

Post by g2morrow »

Thank you everyone for all the ideas and tips - I'll let her know what her options are, thanks again.
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Re: Early inheritance for one - how to equalize disbursement?

Post by Lafder »

KISS

Do not deal with percentages and increase in value that can be argued and legally dragged out by the sib resentful they are not getting an "equal amount" at the end.

Take the total inheritance amount, give sibling 2 and 3 60k off the top, divide the rest in 3. Keep it simple and use the 60k amount that was gifted years ago, in spite of growth that would have happened if each sib was gifted 60k at the same time and invested it rather than spent it.

This way the division of assets after making the 60k gifts to child 2 and 3 , is equal. Humans get very upset if things are not "equal"

"So currently, in my mothers' trust, she has it so that everything is divided equally and then the original investment (~60k) is taken from my sister and distributed to the other two. the trust was created before my sister sold her house. It seems fair enough and I see it was suggested multiple times here. Everything is good."

This method takes 60 k from your sister and gives the other 2 sibs 30k extra each. That seems to be not the same as giving sibs 2 and 3 60 k extra off the top and dividing the remaining amount in 3. Or at least my brain can not make that math work.

If the estate is divided in 3, then an amount is taken from sib 1, wouldn't the "fair" thing be that only 40k is taken from sib 1, and 20k given to sib 2 and 3 so that the original 60k gift is divided in 3 and distributed 20k to each, but sib 1 got theirs years ago?

I think the method that is most solid is to give sib 2 and 3 60k off the top to equalize the gift, then to show the remainder divided in 3. That equal division by 3 is hard to argue. The % calculations, and taking some after divided is all opening up a jilted sib to pursue making it equal.

Wording it as an equal distribution makes it more solid in my opinion and builds less resentmet.

No doubt sib 1 will be upset not to get as much in the end..........so it should be written in a solid way.

If written as mom wants it, that is fine. It may make up for any unfair growth that 60k could have had over the years.

In the end, dividing the estate in 3, then taking 60k from sib1 and dividing to sib 2 and 3, erases the early inheritance she got, and puts the other 2 30k ahead each. If the 60k is all taken back from sib 1 it should be divided by 3 and distribute to all to be equal!

But if mom writes it like that, it should be followed and there is no need to push to change it. To me that is an advantage to sibs 2 and 3 now. Though sib 1 had the advantage of having the $$ all of these years.

Check my math...........this concept of making equal has hurt my head since elementary school. Taking from one lowers their pile and raises the other..........so you are no longer working with the same numbers you started with to try to "make equal".

:0
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Re: Early inheritance for one - how to equalize disbursement?

Post by JGoneRiding »

The math while interesting yo make "fair" is very complicated. The more complicated the more contestable.

I think the fact it's in trust makes it simple. Mom should have gotten 110k from kid. Simply deduct that amount from her share. Don't worry about the time value crap that wasnt the agreement with mom.
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Re: Early inheritance for one - how to equalize disbursement?

Post by Financologist »

tigers174 wrote: Thu Feb 13, 2020 12:48 pm I'd look at what percent of the total portfolio was given to the one person. Take that out of 33.3% and the remainder is what they get as inheritance.
+1
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Re: Early inheritance for one - how to equalize disbursement?

Post by LilyFleur »

g2morrow wrote: Fri Feb 14, 2020 9:50 am Wow, lots of good info here - let me try and clear up a few things to hopefully answer some questions.

The money wasn't exactly given. It was an agreement equity share in a property. Essentially my parents put some money down so she could get a house with the agreement being, once the house was sold my parents would get the original 'investment' back plus 50% of the gain in property value. They had the exact same 'deal' with my brother who, after selling, fulfilled the agreement. My sister though took it upon herself to decide that it was an early inheritance for herself. My mother, father having past, didn't like it but decided it was better than ruining the relationship. She doesn't really need the money but she didn't' like how it was handled.

So currently, in my mothers' trust, she has it so that everything is divided equally and then the original investment (~60k) is taken from my sister and distributed to the other two. the trust was created before my sister sold her house. It seems fair enough and I see it was suggested multiple times here. Everything is good.

At least that's what I thought until she asked me to do some research to find out what the amount was that she should have received. Easy enough, public records property sold, etc.... Turns out if everything had gone as agreed upon, she should have given my parents 110k. I took 9% off the selling price to estimate the real estate transaction cost (yes, I estimated high) Now my mother really doesn't think its fair and asked for my guidance. She still does not want to ruin the relationship with her daughter over 'demanding' the money now but realizes its unfair to the other children and wants that addressed.

I'm going to suggest to her one of two ways:
1. the % of the total assets method. Whereas the 'early inheritance' was calculated to be 10% of total assets (made 10% up, have not done the calculations yet) So, sister would get ~23% (1/3-10%) and the two brothers would get ~38.5% (1/3 + 5%) - this would account for any growth - my mother is in good health and her nest egg could easily double before passing. So now we're talking about some serious money. So how does that get worded in a Trust? or should I not worry about it and leave it up to the lawyer?
2. Just change the number from 60k to 110k in current trust

I told my mother that it's her money and she can do as she wishes. She does not have to justify one way or another (in her trust) why the decision was made or what numbers were assumed to make the calculations, etc...

Yes, I am the executor of her trust. Which puts me in a tough spot. I'm giving advice that would directly benefit me. Should the trust have a 'poison pill' in it about litigation? What other pitfalls should I look out for?

TIA

ps - I was offered the same deal when younger and was lucky enough not to do it. I just didn't think doing business with family was such a good idea.
These types of situations (and worse) are why my son has asked me to consider appointing a corporate trustee and executor.
I have one child who understands the time value of money and one who never may understand it. Both very smart people, but in different areas.
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tarnation
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Re: Early inheritance for one - how to equalize disbursement?

Post by tarnation »

Been through a similar thing, There is no way to make it equitable now other than make her pay up. Curious couldn't moms send her a 1099-C for bad debt? :twisted:
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Re: Early inheritance for one - how to equalize disbursement?

Post by brennok »

Dealing with a similar situation myself now. Widowed mother in 70s granted a sibling early inheritance of 6 figures in 2017 or so. Will was amended that remaining siblings would each get this dollar amount before the remaining estate was divided. Other sibling is now asking for early inheritance due to financial issues with layoffs.

I am being asked to help come up with a solution as also the future executor and to help equalize. She asked if the other siblings would like to do the same, but we don't since there is always the chance she would need that money.

I like the idea of splitting the funds into a separate brokerage account outside the trust and then setting beneficiaries.

The only other thought is to gift up to the limit in stock every year over so many years until the balances would equalize including any growth over the time period. This also has the potential benefit of helping to avoid estate taxes in the future.
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Re: Early inheritance for one - how to equalize disbursement?

Post by JoeRetire »

g2morrow wrote: Thu Feb 13, 2020 12:20 pm Hopefully, I'll be able to ask this correctly. My mother has asked me to help equalize the distribution of her assets when she passes. Normally this would be straight forward, Three kids, each get 1/3rd. But she has given one child a significant early distribution. Now an easy answer would be to give the other three the same amount now but with gift taxes etc .... She doesn't want to do that (and I agree). So how would this get calculated out depending on her longevity? Clearly money from 10 years ago is worth more then money from 10 years from now. I'm kinda at a loss here. How do you compensate for the time/value of money?
How significant was the early distribution compared to the expected estate?
Why should she compensate for the time value of money? Does she have a personal discount rate? Or would she expect to use the recipients' rate?
Are you the early recipient, or one of the two later heirs?

What does mom mean when she talks about "equalize"? Does she expect you to come up with a way to ensure that the net present value of each share is exactly the same? Or does she really mean something more nebulous like "fair"?

She could put aside two piles of money today - one for each of the two later recipients . Each pile equals the amount given to the early recipient increased by inflation since the early gift was given. Have each of the recipients devise how to invest their individual "pile". Upon mom's passing, and assuming she didn't have to deplete the piles for her own expenses, each late recipient gets their own "pile" plus 1/3 of the remaining estate.
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jeffyscott
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Re: Early inheritance for one - how to equalize disbursement?

Post by jeffyscott »

g2morrow wrote: Fri Feb 14, 2020 10:48 am
jeffyscott wrote: Fri Feb 14, 2020 10:33 am I am the financial fairness police with our kids, because my mom was the opposite and that created issues among her children. As it happens, we are currently doing exactly this -- one child is getting a partial early inheritance, while 2 others are not (their choice). My method may be more complex than what you and your mother want to do, but here is the short version:

Whatever amount we give Child A as an early inheritance, we will give effective control of the same amount to Child B and and Child C and they may each decide what they want “their money” to be invested in. The money would remain in our accounts, but their share of it would be in a fund or funds of their choosing (or left with the default option, where they just have a proportional share of all of our investments).

The default option is to leave funds invested as they currently are. I determine our overall returns quarterly, so I just apply that return to the deferred gift balance each quarter for B & C. (They both have just left things this way). Balance in B & C "accounts" is tracked on a spreadsheet that all have access to.

So, for example, if we give Child A $50,000, Child B and C would each be assigned $50,000 of our money. Then if that $50,000 grows to, say, $80K before we actually give it to them, they would get $80K each at that time.

I then adjust percentages to each beneficiary on one Roth account to account for this, since child A got after tax money. In addition, if child B & C were given an equal amount now, the money would come out of a tax-deferred account and we would corresponding reduce Roth conversions. So the money they do not take is effectively added to Roth. If child A were given $50,000 and the balance of the indicated Roth were $200K, the child A gets 16.66% ($33,320), while the other two get 41.67% ($83,340). I can change these percentages each quarter.

An easier way to do about the same thing would be to, in this example, put $100,000 in a separate Roth account at the same time $50,000 was given to Child A. Then make the beneficiaries of that Roth account the other two children.

I have no idea about trusts, all our our money will pass via account beneficiaries. The only thing of significance that would be distributed via will is the proceeds from selling our house.
wiw - that sounds super complicated - did you calculate out what the difference would be if you just figured out the % at time of early inheritance?
I hesitated to do it that way, due to the difference in asset allocation between that Roth and the overall portfolio. Roth is about 80% stocks and overall we are at about 40%. But as we do conversions, eventually there will be more bonds in Roth accounts and it should get to where I can make that Roth account allocation similar to our overall and then I can set and forget the beneficiary percentages. Of course, as I mentioned, I could go with the relatively easy option of just making a separate Roth account or two with the beneficiaries being the non-gift recipients. I may do one or the other of those things, eventually.

In actual practice, since we are on the default option, all I am doing now is updating a spreadsheet once per quarter with our returns and the balance in the one Roth account. The spreadsheet calculates what the beneficiary percentages should be on the Roth account used for this. If the percentages change significantly, I update beneficiary percentages for that account.
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Re: Early inheritance for one - how to equalize disbursement?

Post by MrsBDG »

*What if Mom left the $60k, so $30k each(?) to siblings 1 & 2 to be settled in the trust. Would she have the money to give $25k each to siblings 1 & 2 now, to represent passing on that gain? In other words, she would not feel comfortable giving each sibling $55k now, but could she give $25k now and $30k later. And sibling who created the issue never has to know ;) There is a lot of positive to be said for not forcing all accounting to be settled after death- Mom has a favorite necklace that will cause issues, let her give it away before she dies, then there is less to fight about at a tough emotional time.

*There are two disparities to the early inheritance issue: 1) inflation or earnings over time and 2) how it would have affected your lifestyle. Getting $50k at 35-40 might significantly aid in a house down payment, a remodel, college costs whereas getting $50k +/- interest at 65-70, hopefully, is not such a dramatic change in lifestyle. There is no accounting for that.
Doom&Gloom wrote: ↑Fri Feb 14, 2020 12:23 pm
TSR wrote: ↑Fri Feb 14, 2020 12:19 pm
Yuba wrote: ↑Thu Feb 13, 2020 12:32 pm
Another option if possible (without a tax impact) is to separate out an account with 2x of the amount the one person got.
Have the beneficiaries on that account be the 2 people who didn't get the early disbursement only.

That way, the regular account would have 3 beneficiaries, and the special account would only have 2. Have the special account be the last account where money is withdrawn from since it was already given to the first person, and should be used last for expenses.

My $0.02 worth.

Rick dba Yuba
The more I read of this thread, the better this option seems to me.
+1

As someone who has seen his in-laws faced with a very similar predicament, I wish they had thought of this one.
How could I arrange this as the bulk of her assets are in a single taxable account? I could open another taxable account and do that but her trust would still have to be updated. I dont' think there is any way of getting around that.
*If you did the Yuba method, couldn't you just have POD/TOD as the designation for the 2 party account? And have the account vesting in Mom's name, not the trust? Then it passes directly to beneficiaries 1/2 outside the trust.

* On the percentage versus total amount, as we can see in all the posts, there are many ways to calculate what feels like a fair percentage that gives different bottom line numbers. Going very simple, take $60k (or $110K) off the top and then split the remainder by 3 is hard to argue with.
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g2morrow
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Re: Early inheritance for one - how to equalize disbursement?

Post by g2morrow »

MrsBDG wrote: Sat May 15, 2021 6:57 pm ................ Going very simple, take $60k (or $110K) off the top and then split the remainder by 3 is hard to argue with.
After presenting the options, this is what she chose. Simply and close enough.
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jeffyscott
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Re: Early inheritance for one - how to equalize disbursement?

Post by jeffyscott »

g2morrow wrote: Sun May 16, 2021 7:43 am
MrsBDG wrote: Sat May 15, 2021 6:57 pm ................ Going very simple, take $60k (or $110K) off the top and then split the remainder by 3 is hard to argue with.
After presenting the options, this is what she chose. Simply and close enough.
Would it not need to be double the amount? In effect she gave $60K or $110K to one child. In order to give an extra $60K (or $110K) to each of the other 2, she would have to take $120K (or $220K off the top) and split it between the other two.


NancyABQ wrote: Thu Feb 13, 2020 3:26 pmThe children were aware of what was being done and how it was intended to be handled (what was in the will) so if they had an objection, I guess they could have raised it. They didn't. The amount involved was $100K.


I think that is an important factor. In my mom's case money was "loaned" to one child and the information was intentionally kept from me and another sibling. There were no payments ever made on the "loan" and the secret got out, ruining the relationship between siblings. My mom had very little at death, so even though I had complete control of the remaining assets, there was no way for the unfairness to ever be fully corrected, given that the thieving sister was not going to pay the other two.
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g2morrow
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Re: Early inheritance for one - how to equalize disbursement?

Post by g2morrow »

jeffyscott wrote: Sun May 16, 2021 8:15 am
Would it not need to be double the amount? In effect she gave $60K or $110K to one child. In order to give an extra $60K (or $110K) to each of the other 2, she would have to take $120K (or $220K off the top) and split it between the other two.
yes - the same amount was 'set aside' for each - its not perfect but its close enough
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Re: Early inheritance for one - how to equalize disbursement?

Post by Freetime76 »

Random Poster wrote: Fri Feb 14, 2020 12:51 pm Perhaps I’m just grumpy today, but I think that maintaining family harmony is overrated.

I also think that when one child unilaterally (effectively) changes the deal after the fact, any concern for fairness should be ignored.

So what would I do, given the new information?

Split the inheritance two ways, between the two children that didn’t get the advance inheritance, and cut the sister/daughter out completely.

She had her chance to be honest and fair and she declined to do so. Now (or when mom dies, actually) she gets to face the consequences for doing so. And I’d say so in the will so that if and when a will contest comes, the rationale is made clear to the daughter/sister.
I like this idea. Or I’d throw it out to the recalcitrant kid and watch the fireworks (even if I didn’t do it in the will for real). But, in my family, fireworks is a pleasant pastime. Essentially, daughter still has an outstanding loan from Mom, yet at an unspecified interest rate. [Was giving 1/2 the gain in lieu of charging interest? If so, then I’m charging her interest :wink: ]

Math aside (I gave up - not my family ), if Mom’s goal is to “make it right”, I’d want to know if it’s retribution or returning to some semblance of equality. If the former, then go with the math and adjust for inflation. Heck, adjust for the gains Mom would have received had she invested the money into her existing portfolio or interest on an unpaid loan, or both. Be sure the trust documents allow for a CFP to calculate it out.

If the later and Mom only feels annoyed and like her other kids are getting gipped, I’m going with a finite # ($100K, was it?) upped from the 60K.

My reason is: the original deal was to repay the loan amount plus half of the gain (less your 9% expenses, so fine 🙈 - erred on the side of the daughter. Perfect. No guilt for Mom).
Please spell out new acronyms. Thank you.
JackoC
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Joined: Sun Aug 12, 2018 11:14 am

Re: Early inheritance for one - how to equalize disbursement?

Post by JackoC »

tigers174 wrote: Fri Feb 14, 2020 11:14 am
MotoTrojan wrote: Fri Feb 14, 2020 11:05 am
g2morrow wrote: Fri Feb 14, 2020 10:35 am
MotoTrojan wrote: Thu Feb 13, 2020 1:45 pm I disagree that it’s fair, but it sure is easy.
can you explain what you don't think is fair about this approach?
There is a big difference between getting $100K today and $100K in 30 years (just random numbers). At a minimum I would index it for inflation, but that is still an unfair comparison. A financially well off individual that receives $100K today could easily turn that in to an inflation adjusted $500K or more over 30 years.
My idea was more, person A received 10% of the portfolio value today, so now they only get 23.3% of the portfolio as inheritance. So it should be indexed to the growth of the inheritance somewhat. Of course, the inheritance portfolio can decrease too.
I think your idea would be absolutely correct actually (under a certain key assumption see below), not only simple. There is no possible answer if it depends on the varying return estimates and risk tolerance of heirs 1, 2 and 3, since there is no objective answer to either of those things, a hint that the best answer would not include either. :happy I agree *if the mother is not going to herself consume part of the 90% she doesn't distribute now* the simple and right answer is that the person getting 10% now has a remaining claim to 25.9% (23.3%/90%) of the remainder distributed, the two others 37% (33.3%/90%) of the remainder.

The complication would be if the mother is going to consume any significant portion of the amount she doesn't distribute early, as opposed to just wanting to have it around 'in case'. Say for extreme illustration purpose she ends up spending *everything* besides what she gave early, then clearly the early heir got the better deal, something v nothing. To be purely fair she has to keep track of her consumption of the portfolio. Say she consumes 1% in a given year. The early heir's portion of the remainder should then be adjusted down to account for the 10% not having been subject to that 'tax'.
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