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Hello,

My Grandmother recently passed away, leaving me Family Trustee of the trust she left - income to benefit my mother during her life, and remainder to benefit a local college. There is a Corporate Trustee, the local bank, who will have to agree with me on all decisions.

She left her entire estate, with the exception of some listed personal property, to the trust. That included her home, in which my mother was living along with her. (Family and friends are appalled that she would do that to her disabled daughter. But she would not be persuaded against it - but that's another story.)

The thought was that the house would be sold, the proceeds would be invested, and the income would go to my mother. We're not talking about a lot of money - about 200K total after selling the house. The income is expected to be no more than 7K per year. But my mother doesn't have alot of options on where to live (and living with me is not one of them).

The trust is allowed to own property held in anticipation of appreciation. And it is stated explicitly in the trust agreement that investments need not be diversified. To my mind, that means that the house could be transferred to the trust - that it doesn't have to be sold - and that my mother could live there until such time as it proved impractical, or she died, and then the (hopefully) appreciated property could be sold by the trust.

Am I missing something? If not, how to structure the payment of property tax, property insurance, umbrella insurance, etc.? What about necessary repairs over time? Just add them all up, with an 'escrow' amount for repairs and charge that amount for rent? How to determine the right amount for the 'escrow?' Other considerations?

I have a fiduciary responsiblity to the trust, and an interest in the well being of my mother. I will also have to justify my actions to the state of Pennsylvania at the point that the remainder is paid out to the charitible interest (the local college.) I will also have to sell this idea - should I decide to go ahead with it - to the bank trust officer, who would, I'm sure, prefer to sell the house and invest the proceeds in securities.

Any better place to post this question?

Womanontheverge
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She left her entire estate, with the exception of some listed personal property, to the trust. That included her home, in which my mother was living along with her.
...
To my mind, that means that the house could be transferred to the trust ...

I'm confused. Your first sentence led me to believe that the house was in the trust, but the second belies that. If your mother continues to live in the house, does the trust have sufficient funds to support her needs as well as those of the house? IMO, this is the key. Your grandmother set this up with the idea of providing for her daughter and your arguement to the bank is what is the best way of providing for her. You can't act without them, but I'm sure they also can not act without you. This includes selling the house in the first place.

What part of PA is the house in? We recently sold an investment property near Philly because of record high appreciation. This may very well be a great time to sell.

Of course if you sell it will mean renting or buying something else. Would your mother perhaps be better off in a condo/townhome situation where there is less maintenence for her to worry about? Because so many people are buying, rentals are more easily negotiated as well, but that will be a temporary situation unlike locking in a 30 yr mortgage or buying outright. $7,000 would only get you a rent of $583 per month, assuming no taxes get taken out of the income. Is she allowed to draw on the principal as well? It may make much better sense for the trust to hold real estate, this house or a smaller property, for her to live in.

If not, how to structure the payment of property tax, property insurance, umbrella insurance, etc.? What about necessary repairs over time? Just add them all up, with an 'escrow' amount for repairs and charge that amount for rent? How to determine the right amount for the 'escrow?' Other considerations?

If the college is only entitled to the principal of the trust, it would seem to me that the costs of the property could be offset by the increasing value of the property. A condo situation could be more predictable as the condo association fee covers things like outside maintenence and roof repairs. Since your mother is entitled to the income from the property, wouldn't this include appreciation of assets? I see why the bank prefers securities, although the same issue would come into play with stocks as well. They will most likely want you in bonds and bank cds.

I'm sorry for your loss. You are not in an enviable position, but also not an impossible one.

InParadise,
very interested in the resolution of this situation.
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One thing to consider if you have the choice, is whether your mother should own the house vs. having the house owned by a trust with her living there rent free. If she is receiving SSI (not SS Disability) she may be able to exclude the value of the house as a resource, but if she lives rent free in a house owned by a trust, she will have to count the fair rental value, less exclusion, as income for SSI purposes, and that will reduce her SSI payments. If she owns the home, she may be able to exclude it's value from her countable resources and not have a reduction of her SSI. If she is getting SSD, there should be no problem. Of course, if the house is already owned by the trust, then all this is moot.

EJDubya
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Thanks for the replies (both of you).

To clarify. The trust was a living trust. It presently holds marketable securities. The trust agreement states that at the settlor's death (my grandmother) - the income is to benefit my mother during her lifetime, and the principal, at her death, to establish an endowment at a local college. I do not know whether appreciation qualifies as 'income.' I need to find that out. Certainly there is an arguemnent that realized capital gains are 'income.' Good point.
No, principal is not available. If it were that would be much more workable. We could get a higher annual income from the trust if we didn't have to leave principal behind for the charity. That, I think, is the part that works everybody up - you wouldn't believe the comments from her longtime friends and church members at the memorial. 'I loved your grandmother, but I can't agree with what she did to your mother.' was the constant refrain. But she wanted to leave a permanant legacy, and it was, after all, her money.

The house was not owned by the trust, but rather by my Grandmother proper. There is also a checking account with a few thousand dollars. The will, however, states that everything, with the exception of some furniture, etc. which has been specified, goes into the trust.

During her lifetime Grandma clearly expressed her expectation that the house would be sold and that my mother would move into a rental. But it's not clear that this is the best choice for her. And the actual documents do not require this. So I'm exploring my options. My mother would PREFER to live in a house. And, if the costs are similar - and I'm thinking that they might be, I'd like to help her do that. Especially in the house she grew up in, if she wants to live there.

As to location - the house is in the Back Mountain area of the Poconos.
Very pretty country, pretty far out of the way too. We're waiting for the apprasal on the house, but got a preliminary valuation of 95K for it. A definate fixer-upper.

About her disability - she's currently fighting to retain it - she's gotten a letter stating that she is no longer considered disabled. But we're still going through appeals, and that may continue for the year and a half until she turns 62 and can collect SS retirement income.

Purchasing a townhome might be the perfect solution - if there were any in the area. Something to check into, definately.

Imputed income via living rent free was one of the reasons I was thinking in terms of her paying the trust rent. Reason one, to offset the negative factors associated with holding real estate by the trust - expensive carring costs realtive to securities. Reason two, to eliminate the imputed income to my mother, which might otherwise have to be reported on a 1099 and income taxes paid on it.

So much to think about!

Womanontheverge
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Shelling out some money for legal advice would be highly advisable in this situation.

You need to know,
what you can invest in and without the full trust documents we here on the fool won't be able to reliably tell you exactly what those options would be.

You need to understand exactly what your fiduciary obligations to the trust are and what investments are acceptable. Your implied 3.5% return for the trust would seem to be mostly fixed income securties.
If part of the funds could be put into real estate where value is at risk, then perhaps some of the value could be put into equities. Exploring what investment oportunities the trust has open could greatly affect your mothers quality of life via enhanced income. You have to understand if the trust will allow you to make investments in which the principle value is at risk.
Value protected equity funds may be acceptable to the trust. These are index funds with an "insurance" wrapper that will protect against loss of principle. It isn't a free ride but under many times they will have returns in excess of a fixed income portfolio.


Finally, your grandmother had a reason in mind when setting up this trust. It is a shame that the logic and reasoning behind this wasn't communicated. There is a lesson here about communication.
People can live for a very long time, and the required preservation of principle will ensure that your mother has income over Social security even if she should live to be 100 or more.


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If the house was big enough for two people to live in it, perhaps it is now larger than one person needs?

If there is cheaper smaller housing out there (which doesn't have to be in exactly the same place) then selling the house and purchasing another small/cheaper property would make much more financial sense. A condo ect which can be easier to maintain could be a much easier place to live.


Since your "unhappy" with the trust this financial structuring may be "better".

1. Sell old, house invest procedes in mortgage backed securties.

2. Have mother PURCHASE new cheaper house/condo and take out a loan.

3. Pay mortage out of income from mortgage backed securties. Ownership and appreciation of house will belong to mother and be hers to pass on liquidate at a latter date.
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My grandmother's intentions were:

* Provide continuing income to my mother
* To protect the money from my mother's decision making
* To leave behind a 'legacy'

I love my Grandmother dearly. I never argued against her leaving her estate this way - and she did discuss it with me - because it was what she wanted & it was her money to do with what she wanted. But now I have the challenge of housing my mother in a environment where there are few choices that are attractive.

There are no smaller less expensive houses in the area. Due to the 'fixer-up' status of the house in question, it would raise about enough to purchase a smaller house in fair (not excellent) condition. The income from the proceeds, invested in mortgages might well cover the mortgage payment - but there would still be carrying costs, which would be about the same as the old house: property tax, insurance, electricty - oil for heat might be somewhat less. But this old house is surprisingly inexpensive to heat - $200 per month in season.
Factor in transaction costs and down payment, and the trust owning the house seems a better option at present. It can always be sold later.

There are, in fact, very few limitations as to what the trust can invest in. Investments need not be income producing. And the trust need not be diversified. Clearly we want to plan for appreciation, to keep the income at pace with or ahead of inflation.

Thank you for your comments. They are valued.

Womanontheverge
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If the house is a fixer, what would it fetch if fixed up and how much might it cost to fix it? My experence is that if you own a fixer then spending the money to get it in good shape can increase the market value by MORE than what you spend.

Additionally, there is no cheap single person housing in the area... What currently ties your mother to the area? Because I know for a fact there are condo's ect in various parts of the country suitable for a single person that can be purchased for half what you say the house is worth.




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Additionally, there is no cheap single person housing in the area... What currently ties your mother to the area? Because I know for a fact there are condo's ect in various parts of the country suitable for a single person that can be purchased for half what you say the house is worth.


Well - my mother is disabled by mental health issues. On her medication she is pretty much OK. If she stops taking her medication - well, that's another story.

Mom doesn't take to change too well, emotionally. And she doesn't make friends easily. Not that she really has many friends - a casualty of her illness. Even on her meds, there is something that is 'off' about her. People are ill at ease.

In the area where she's living, people know her. They know me. They talk to each other and their pastor. She grew up there, etc. If things get weird, there is a better than even chance that I will find out in time to do something. And the laws in PA w/r/t involuntary committal are not as libertarian as they are in some other states. If necessary, I could get her admitted for a few days for an evaluation. Which would most likely be enough. In another state - not necessarily so. Her doctors are there.

She has a job with GoodWill Industries. It's not likely that she'd be able to find a similar work placement in another location. It doesn't pay much, but it gets her out of the house and gives her people to socialize with.

I live in NYC. She needs to live within a reasonable distance from me, so that I can visit on a regular basis. At present, I consider her to be at the outer edge of a viable distance. I can get there in three hours. The closer you get to the city the more expensive the housing, unless you are in an urban center. We have experience with her living in an urban center. A repeated combination of her being ripped off and taken advantage of, via outright theft and break-ins and via men taking advantage of her emotional neediness.

But if you are aware of any housing within 3 hours by car of NYC that might be in a stable economic neighborhood, that would be in the price range that you have in mind, please let me know. It would certainly be an option.

Womanontheverge
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I thought I was familiar with the Poconos but I never heard of the Back Mountain area.

If you are looking for a less expensive place for your mother in a town with a hospital, you may want to look in Honesdale (Wayne County) or Port Jervis, NY. These are both within 3 hours of NYC. A quick look on realtor.com indicates that housing seems to be less expensive in Port Jervis with the added benefit that there appears to be some condos under 100k in Port Jervis. Some areas in northwestern New Jersey may be in your price range also.

You may want to check with a lawyer who has trust experience in the state where your grandmother resided to get his interpretation as to what assets are available for support of your mother. There may be more than you think.
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But if you are aware of any housing within 3 hours by car of NYC that might be in a stable economic neighborhood, that would be in the price range that you have in mind, please let me know. It would certainly be an option.

Womanontheverge


Have you looked at the foreclosure listings on Ebay? IIRC, there were lots of listings for NY, but I do understand it is a big state. Many were not in cities. You can selectively view the foreclosures based on state and sometimes even city. We are talking increadibly cheap. In the real boonies it seems they can't even give them away, which will become an issue again when she no longer needs the place.

This won't help with the familiarity issue, though. That could be worth a pretty piece of change.

Good fortune,

InParadise
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I thought I was familiar with the Poconos but I never heard of the Back Mountain area.

Dallas, Lehman, Harvey's Lake, etc.
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I thought I was familiar with the Poconos but I never heard of the Back Mountain area.

Dallas, Lehman, Harvey's Lake, etc.

The house was ballparked at 95K, but now the appraiser is saying more like 80K - and it may go lower. So the opportunity of selling the house and buying something smaller and LESS EXPENSIVE is getting more and more remote. Mom had been talking trailers & double-wides, but I don't like buying depreciable assets. And they are EXPENSIVE to finance.

But, good news - the Bank trust officer is pretty reasonable about the idea of keeping the house for my mother to live it - in theory. We just need to come to terms on exactly how it will be structured.

Womanontheverge
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