Money and Family: Anybody a financial planner AND a family therapist?

[Dueller]

Families and money...what a mess. Let me share with you a scenario and ask how you would handle it.

My parents are comfortably retired, in relatively good health in their mid 70's. They have 2 children, my brother (45) and me (50).
Thru a frugal lifestyle and some inheritance, they have two farms, a nice country home, and no debt. Their monthly after tax income is c. $12K. They live a relatively modest lifestyle spending about $2500/month. Current real estate is valued at c. $1M. Current liquid cash assets are approximately $1M also, but growing because they are saving an additional $80-100K per year. Catastophic medical or extended skilled nursing care is not an issue...they are insured to the hilt. All a blessing as I have several friends who are having to help support their parents.

My brother is a veterinarian. A few years ago he sold his practice for a tidy profit and became a college professor practicing veterinary medicine on the side. As a result he took a pretty good cut in pay. He has 2 failed marriages,, 2 children from his second who live with their mother. Here's where it gets weird. He reconciled with his first wife, didn't remarry her although they live together. She turned up preggers and they now have a beautiful 3 y.o. dtr. He won't marry her likely because he feels like she trapped him with this pregnancy...won't go into the details but suffice to say I think he's correct. E.g. she refuses to work even parttime to support the household, etc.

I'm remarried with no children other than teen step children which are solely supported by my wife and her ex. I make a decent living as a country lawyer, my wife works full time. We live well within our means and we pay cash for our home, cars, vacations etc.

About 3 years ago, my brother decided to buy a rural home with acreage. He finds a 4500 sq ft home on 39 acres with a pool, outbuildings etc. The purchase price is $400K. He signs a contarct planning to put $200K down and finance the rest. Because of a delay in the closing it spanned a new tax year and
suddenly can't get approved for the $200K loan due to his decreasd income despite his credit being perfect. My parents agree to lend him $200K short term while he straightens this out.

When it becomes apparent that he's not going to get permanent financing to pay them back, my dear sweet mother drafts a note at 3% interest on the $200K.

Now, let me say my parents are very generous to us and have always treated us fairly and equally. We each receive a gift of the maxuimum allowed amount to avoid estate and gift taxes each year as part of their estate planning. But they have now decided to just withhold his annual interest payments from his gift...so instead of receiving $12K each year, they only give him $6K (with $6K being the interest on the 200K at 3%).

As an attorney, I know this is a cluster fock waiting to happen. The "note" my mother drafted is completely unenforceable and violates a number of IRS regs. Given that there is no valid mortgage my parents are completely unprotected in the event something happens to my brother. Basically the home would go to each of his three kids unencumbered and the two ex's would be up in the middle of it all under the guise of protecting their children's rights. I could go on ad naseum...suffice to say there are bad legal consequences for everybody concerned.

All of the above was done above board with full disclosure to me. I strongly suggested that they hire an independent CPA/atty to set it up properly. When they didn't, I sent all of them a letter(including my brother) with my concerns of the legal /tax consequences with absolutely no mention of how I'd possibly get screwed . I never suggested they offer me the same "deal." My parents appreciated my concern but took the attitude that "we appreciate your concerns but, well, its already a mess so we'll just leave it like it is. We wished we hadn't done this,,,but its done now...yadadadada. "

Sorry for the length of this tome....here's where it is now:

1. Even though I've dropped it, my parents constantly remind me that if something happens to them that they've made provisions for me to receive an extra $200K. This bothers me and I've thanked them but asked they just quit reminding me.

2. Despite my requests to not involve me, my mother wants to call me and complain about something my brother is doing with his finances and bring the conversation back around to the loan.

3. Alfter no one wanted to see an independent CPA/atty and didn't want to listen to my suggestions, I've dropped it with all of them. However, it is causing tension between my brother and I. E.g., out of the blue he tries to convince me the interest he is "paying" will help increase my parents estate and I'll benefit when they die. Or if he buys a new car or takes a vacation, he feels a need to explain to me why/how vis a vis not being able to pay my parents back.

4. Ultimately all their talk comes back around to I'll benefit when my parents die...and that is a morbid thought I don't want to think about.


Sorry I've rambled....there really is nothing I can do about this mess, and its their money so I really don't have a say so. But they keep bringing it up no matter what tact I take to change the subject. I've tried to addrsess it head on, but that clearly didn't work.

Any suggestions?

[stomachmonkey]

Just come up with a boilerplate answer every time it comes up.

"Stop, I gave my professional advice on this matter once. If you wish to continue discussing it I must advise you that the 1st hour was free, any further conversation regarding this matter will be billed at the friends and family rate of $150 an hour. Shall I start the clock?"

You may have to repeat it several times before they get it but get it they will.

I understand your concern re: the x's and kids. That's the messiest part IMHO. Can you convice your brother to put everything in trust with an independant attorney? Position it as looking out for the best interests of your nieces/nephews. You have nothing against the x's but the fact that there are 2 of them could make it messy for his children and you're sure that's not what he wants.

[Sonic dB]

Here is my take, pardon my bluntness...
Your parents have too much income and too much time on their
hands.
They are very fortunate. Its a good life for them...but they need to get a handle on how
much money this actually is, and they need to create a Living Trust as soon
as possible to straighten out the money situation.

Your brother sounds like sort of a screw-up. He makes bad
choices in the women that he is with and doesnt seem to
appreciate the good financial gifts that he has received from his
parents.

The spiral between your parents and their irresponsibility with
their money + your brothers personal irresponsibility = a state of
conflict that is spiralling down to you. They all know its screwed
up but they refuse to take responsibility for straightening it out
and the money is "padding" the situation...money has a way of
making one forget about responsibilities and taking things for
granted.

You have already done the proper thing so far...If I were you,
I would clearly state to your parents and to your brother that
you have had enough, and you will not longer listen to any of
their BS. Any time the topic of conversation even comes close to
reaching that topic....I would cut them off abruptly and tell them
that you are not going there. End of story. No further discussion.

[lendaddy]

If this is a big problem in your life you are truly blessed. Just let it go as one of those things.

[notfarnow]

Originally posted by lendaddy
If this is a big problem in your life you are truly blessed. Just let it go as one of those things.

+1

Sure beats me having to convince my mother, at 58, to start looking at retirement planning.

But I get what you're saying. You're uncomfortable with the situation, but don't want to be in the middle of it. Not fun.

[lendaddy]

My response read awful flippant, that wasn't my intent. I agree on the simple boiler-plate response, they'll get sick of hearing it and stop bringing it up.

[berettafan]

So worst case scenario is your brother is up $200k on you? Brother owes the estate $200k so i would think that gets sorted out by PR when estate is divided up. Wouldn't your parent's will state that all notes are to be paid pack to the estate or subtracted from beneficiary's portion of the estate? A note is a note is a note. If interest is charged and reported correctly for the life of it (correctly) i don't understand where there is a problem netting the $200k. I'm guessing your real world experience has shown otherwise?

Interest has been paid, sort of. However your parents need to verify the IRS AFR as of the date of the loan. Any interest amount less than this is a gift IIRC and therefore may possibly be eroding their lifetime exemption. I don't recall IRS AFR's being less than 3.9% or so but i certainly could be completely wrong on that. Easy enough to check though.

Of course anyone else with this situation would be hearing that the worst case scenario is the various beneficiaries 'lawyering up' and pissing away the family fortune on atty's just to spite each other. Seems you at least have a leg up on that part of it.

[berettafan]

Oh and couldn't you record the mortgage for your parents? Or are you saying they are refusing to do this?

One other thing; i'm not sure if gifting the interest amount due is a suitable substitute for actually paying it. Can look further if you like.

[the]

Go all Cain and Abel on him.

[Dueller]

Thanks, all, for your candor.

Here's the deal: If it were simply a matter of forgetting about it and accepting the fact that my brother will receive a $200K windfall from my parents' estate, I could handle that. In the letter I sent them all, my first recommendation was to just make it an outright gift to him, file the returns and fuggedaboudit. But they decided it needed to be memorialized with the "note" my mom prepared. Keep in mind that its not enforceable and there is no mortgage to record. (And Berrata, the AFR at the time was around 4.6%)

Dropping it does not seem to be an option as it keeps getting brouught up by all of them implicitly or explicity with me in conversations not really related with this matter. And anytime we are discussing financial matters it is a cloud over rational discussion.

While I'm comfortable and totally self supporting, I'd be lying if I said it didn't cross my mind with what I could do with an extra $200K laying around even if I was paying 3% for the money. I wish my parents would just gift the damn money to him and move on. Perhaps I should continue to avoid the topic, but when I'm blunt about not wanting to go there they all misinterpret that I'm angry about this mess. For example, my mother was clearly feeling me out when she approached me and said "Well I guess we should just give you the same amount to make it fair." My response was to the effect I don't need it, it would be a blessing if they decided to do it, but ultimately its your money so do with it what you want. With that she defers and says "Well you know if your dad dies he wants you to get yours at that time." What am I supposed to do? Rejoice at my fathers passing Sheeesh. Guess they just have to deal with it.

I'm not so much angry with it as I am frustrated with what I know is coming when my parents die (assuming they predecease me) and having to deal with my brothers twisted logic and rationalizations.

Thanks for letting me rant. It is cathartic.

[Cdnone1]

My advice is get numb to it.
Your parents are not going to change anything at their age. Mine certainly haven't. Your brother doesn't sound like he is in any rush to rectify the situation.
It might be that this is bothering you more than it's bothering any of them.
Here's my little example.
My wife and I built a custom home. As a house warming gift my mother in law wanted to buy us Hunter Douglas blinds for our downstairs family room. I said no way. Wife says sure, so next thing you know we have Hunter Douglas blinds from my mother in law.
Every time, and I mean everytime she walks into our house she says something along the lines of " dear, why don't you open those $4800 blinds I bought you. Honey it's getting dark, why don't you close those $4800 blinds I bought you"
You see where I'm going. I drives me nuts but I now play the over/under on when she will mention the blinds, she bought them, the price. She actually went more than a hour last time she was here
Parents?!
Steve

[silverwhaletail]

Originally posted by Dueller
The purchase price is $400K. He signs a contarct planning to put $200K down and finance the rest. Because of a delay in the closing it spanned a new tax year and
suddenly can't get approved for the $200K loan due to his decreasd income despite his credit being perfect.

This part, "and suddenly can't get approved for the $200K loan due to his decreasd income..." is not a truthful statement.

200k down on a 400k purchase of real property? This is every lenders dream. They dont even cringe when roaches like me sprint into the building underneath the closed door, climb up on the desk and ask for a couple of million bucks with 15% down.

Silverwhaletail
"used to love slutty women and run-down apartment buildings"

[notfarnow]

Originally posted by Cdnone1
Every time, and I mean everytime she walks into our house she says something along the lines of " dear, why don't you open those $4800 blinds I bought you. Honey it's getting dark, why don't you close those $4800 blinds I bought you"

Oh cripes that's funny stuff. I can totally relate... my mother in law loves being generous so she can remind you what she gave you ,and how much it cost. Especially if there are people around. She's currently banished from our property so I don't have to put up with it too much.

Dueller, I think stomachmonkey is bang on:

"Stop, I gave my professional advice on this matter once. If you wish to continue discussing it I must advise you that the 1st hour was free, any further conversation regarding this matter will be billed at the friends and family rate of $150 an hour. Shall I start the clock?"

You may have to repeat it several times before they get it but get it they will.

[MRM]

Forget about it. My mother gave the family farm to my brother over my objection and request to pay for it. This was despite the fact that the difference between selling the farm to me and giving it to my brother is the difference between comfortably spending summers up north and winters down south and eating mac and cheese for the rest of her life. Eventually she told me that my wife and I did well enough that we didn't need the help and that she wanted to give it to him and didn't care if it hurt my feelings.

I don't talk to that side of my family any more. If you want to go that route, keep involved and keep telling everyone to stop insisting on being stupid. If you want to keep talking to the folks and the brother, insist on not talking about it at all and keep repeating that their dealings are between them and you will not get involved.

Either way, your parents will insist on doing what they are already doing and nothing you say will ever change them. I have no regrets about how things turned out with my family as I am much better off not talking to them. Maybe you'll find yourself in the same situation.

[Moneyguy1]

We all should have such problems.

As a financial planner (retired) I follow the boiler plate advice. However, going further, this kind of situation; your career, financial independence and theirs should not result in a loss of sleep. Not a family therapist. Just let it be.

[Tishabet]

Dueller - you have a PM

[Dueller]

Thanks to the rest of you who weighed in. Yeah, I realize in the big scheme of things this is not that big of a problem. Lendaddy's probably right that I should just let it go as one of those things. But there's the rub...I never bring it up...they always do no matter how often I insist that we not discuss it any more.

Perfect example...today my brother calls to say hello and catch up. We were talking about me getting another dog since ours was killed. I mentioned that probably wouldn'tt get one until we had a fenced yard, He says fences aren't that much...I put one up for $XXXX. I say we're looking at another house that is already fenced. He says Why do you want a new house? Then he just abruptly stops in mid sentence. Awkward silence and he rushes to get off the phone. Trust me...I'm not reading more into this than there is...in context it was apparent where he was going and it just got really awkward for him. I swear the furthest thing from my mind was anything with his deal.

But I suppose I'm in a better position than he is with the tension between him and my parents. The money, though not inconsequential, is not enough to lose your family over.

Thanks again...

[Dueller]

Originally posted by Tshabet
Dueller - you have a PM

Thanks, Grant

Back at ya

[Moses]

OK, this is going to sound harsh...real harsh.

It's a little creepy calculating the value of a loan to a troubled brother. The money is part of your parents estate. It is not your money. Your parents have no obligation, moral or legal, to provide equally for you and your brother in this life or after their death. It's their money.

Many parents feel that the bulk of their estate should go to the child who has less. While I do not agree, I understand that the money belongs to them.

Your mother keeps bringing it up because she feels badly about the situation. In other words, you have failed to adequately reassure your mother that the money does not matter to you. A parent should never feel guilt for helping a child. Discussing estate planning with parents is a delicate issue. As a general rule, one should strive to be gracious at all times. It might help to remind yourself repeatedly that it is not your money.

I would understand your plight more if you were struggling with a large family and you were in danger of losing your home, but you're not. You are financially secure without any real need for a large inheritance. It is fortunate indeed that that your parents have been successful and that they are generous people.

Why not call your brother and tell him you're sorry if you've made him feel uncomfortable about the loan he got from your parents. Tell him your just happy that your parents were in a position to help him when he needed it. Tell him you don't care about the money. Remind him that you have plenty of money but you only have one brother.

Tell your mother how happy you are that she was able to help your brother when he needed it. Tell her you are sorry if you made her feel badly about her generosity. Tell her you don't care about the money. Remind her that you have plenty of money, but you only have two parents.

When your family is absolutely convinced that you are not concerned about the equity of your inheritance, there will be no more awkward conversations with your brother and there will be no anguish in your mothers voice.

[red-beard]

PM sent. I know a Family Law lawyer who turned to financial planning in San Diego.