Liquidating an estate in the USA... in today's economy. Shouldn't we just wait a while?

June 21, 2008 7:33 AM

How should we handle liquidating assets in an estate in the USA right now? Assets consist primarily of a stock portfolio and a house.

My father recently passed away, leaving behind an investment portfolio worth about $650,000 and a house valued at $300,000. This will be split 6 ways; four of the inheritors have expressed a preference to liquidate everything straightaway and wash their hands of it.

Aside from the emotional issues the other 2 inheritors have with rushing into this, we are wondering financially what is the best way to handle this given today's market conditions. My understanding is that housing prices are very low, and we can all see what's happening with the stock market. My first reaction is that now is an extremely bad time to be liquidating any assets from a strictly economical perspective; this view is what I am asking for your feedback on.

None of us are very experienced in financial matters; we plan on searching for a financial advisor next business week, but in the meantime I would appreciate any informed advice about how we can best retain the value of these assets as we decide how to handle the estate.

Specifically:

1) Should we sell the house now and take what we can get, or is it likely that we could get more value from holding on to it for a year or so and possibly trying to rent it in the meantime? I think that there are two factors that would contribute to the house being sold under value: today's market conditions, and the desire on the part of the executor of the will to sell the house as quickly as possible regardless of any loss. At least one of these seems avoidable, but if the market is expected to worsen, it would be an advantage to sell it now. No one plans to live in the house, but there are local family members who have offered to help with its care and administration if needed.

2) Same as above for stocks; I have not yet seen the contents of the portfolio, but am inclined to believe that after the November elections, there is a good chance the economy will be positively affected. We also know that the portfolio consisted of low-risk stocks aimed more at stability and long-term returns. Should we wait and see, for this or any other reasons, or should we cash it in now in case things get even worse?

3) The biggest concern: what happens if the 6 beneficiaries disagree on the questions above? One of the four who wants to eat the whole cake now will have power of attorney by Monday. If the two of us strongly disagree with his opinions on how to handle the assets, what happens?

More important background: the 4 who want to take the money and run are all 40-something homeowners who are married with 2 or 3 kids apiece, have Masters degrees, are stably employed in long-term careers, and generally already have all the security they could ask for as far as I know. We (the other two) are in our early twenties, have bachelor's degrees, are employed but with very modest salaries, and are unmarried. I think these differences are serious and, without being selfish, I feel that given that they have so much more security, our needs for the near future should be prioritized. The people who left this inheritance were there to support them when they were our age, and we no longer have any sort of safety net. Side question: is this incredibly selfish of me? I realize that they are probably looking forward to using their share towards their children's college tuition and their retirement funds, but the fact is that a few thousand dollars lost by liquidating sooner than necessary could mean a lot more to the younger beneficiaries. We are not sure why they want to rush into liquidating everything immediately when none of them have any immediate need for large sums of cash that we know of, and certainly no one was anticipating this to happen now.

Again, we will look for a financial advisor and are going to speak with some attorneys in our local network as well, but appreciate your advice in the meantime.

posted by anonymous to work & money (17 comments total)

I feel that given that they have so much more security, our needs for the near future should be prioritized.

If the deceased felt this way, it would have been specified in the will.
posted by pieoverdone at 7:50 AM on June 21, 2008

Unless there are tax issues or other complications, I'd suggest selling the estate for a fair value now and then distributing the proceeds. This gives everyone liquidity, and avoids arguments since everyone can make their own individual decision on whether the markets (housing, equity, etc.) will improve or not. That is, if you think it's too early to sell the house but the other five disagree (and reasonable people can easily disagree on the question of where the market is heading), you can immediately take your share and plow it back into real estate, and they can invest somewhere else.
posted by blue mustard at 8:28 AM on June 21, 2008

"is it likely that we could get more value from holding on to it for a year or so and possibly trying to rent it in the meantime?"

This is going to depend strongly on the local market. If there wasn't much of a bubbly run up locally and the house is located in a good neighbourhood that is well located for a carless existence then you might see some appreciation. If you're in, say, southern California houses are probably going to continue to decline to below historical average. 50% off the peak isn't out of the question and recovery could take a decade.

If you are in a declining bubble market the best thing to do is price aggressively rather than following the market down. You are much better off to sell for $280K today than $280K next year, or even $270K 6 months from now.
posted by Mitheral at 8:29 AM on June 21, 2008

The other thing to consider is the condition of the house. In this market, nobody wants a house that will need major upgrades (cosmetic or mechanical). Moreover, if you wait until later, are there things that will just get worse? I know someone who bought a house that had sat for a year with an uninterested owner. When she bought it, the roof had fallen into the kitchen.

I wouldn't chance waiting it out, especially because summer is better than winter. Make sure the house shows well and works well before you do anything.

What does your estate lawyer say about this? Surely you've had to deal with someone as you go through probate. (In fact, are you done with probate? DEFINITELY don't do anything until they say it's okay.) Do talk to a financial advisor as well; your plan is good there.
posted by Madamina at 8:48 AM on June 21, 2008

The estate should follow the will. And the estate should distribute assets as efficiently and quickly as possible.

I don't see any speculative reason not to liquidate the stocks. An estate should not be playing stock market timing games. If one of the heirs doesn't want to sell the stock now they can always take the cash and buy up the exact same stocks again. There are tax consequences to buying and selling stock, you may want to look into transferring the stocks directly rather than selling and transferring cash. Either way, the amount of money involved is large enough you should hire an accountant to be sure you do it correctly.

The house is more complicated because it's a fixed asset and may have emotional meaning. However the estate doesn't get to make its own rules, it has to follow the will. It may be possible for the heirs to come to an agreement where one of the heirs keeps the house in exchange for some agreed upon cash value. It doesn't make much sense to me to hold on to an empty house with maintenance costs in the speculative hope the housing market will appreciate.
posted by Nelson at 8:50 AM on June 21, 2008 [1 favorite has favorites]

I feel that given that they have so much more security, our needs for the near future should be prioritized. The people who left this inheritance were there to support them when they were our age, and we no longer have any sort of safety net. Side question: is this incredibly selfish of me?

I'm not sure that selfish is the right word, but you definitely need to get over this sense of entitlement, because it is misplaced. Not only is your net worth about to go up by six figures in your 20s (most people, even here in the wealthy USA will never have those sorts of liquid assets. You're going to have them for most of your life), but your writing comes off as "I deserve this more" or "Dad would want me to have this more". That's an ugly sentiment, especially when your reasoning is "Because I'm younger". You are an adult, and you're going to have different opportunities than those around you (some better, some worse), and resenting/penalizing those for the fortunate opportunities they had and you didn't is petty, lame, and oh-so-very Junior High.

Get over it. If the deceased believed that you deserved more, or needed to be taken care of in your twenties (!!), they'd have made provisions in the will.

I hope that the 40-somethings aren't also saying "Dad would want his grandkids to have more of this, and not the silly 20-somethings with minimal financial obligations and all their earning potential in front of them". If you guys are all looking at each other across that sort of divide, there are going to be some long days ahead.

(Incidentally, in the workplace, this sense of entitlement is one of the biggest divides between Gen X and Gen Y -- you may be treading in especially dangerous waters here and not even know it. But, family dynamics are different than workplace dynamics, and my area of expertise really only includes the second)


My understanding is that housing prices are very low, and we can all see what's happening with the stock market. My first reaction is that now is an extremely bad time to be liquidating any assets from a strictly economical perspective; this view is what I am asking for your feedback on.

Shrug. You can't reliably predict the housing or stock markets. The national economy may recover in November after the elections. We might discover endless oil supplies in Rhode Island. Or in December, an imbalanced pro-life Kansan preacher might wake up one day and blow up the Federal Reserve, leading to the largest sell-off in history. Or cancer takes Steve Jobs, wiping out 70% of AAPL's value overnight, and dragging down the last remaining sector of the US economy that's still firing on all cylinders. Or Israel bombs Iran on our request, which results in an oil embargo and $15 gallons of gas (or a colonization and $1 gallons). Or the housing market's reaction to long-term cost of transportation is to severely devalue the land outside of urban centers... or, or, or...

My point is that you don't know whether this is a market bottom in either relevant market (though you seem to think that you do)... and it will cost you to find out. The others, for whatever reason, would rather avoid that cost. (One of their reasons might be that they want to spend as little time and energy on this... some people want to tie up all affairs ASAP, because it helps them with their grieving. This sort of "psychological cost" is quite valid as well, though it's hard to relate to if you don't feel it yourself).

The other thing to keep in mind is that the investment strategy that is suitable for a 20-something with no kids or debt is very different from what is likely in your Dad's portfolio. He (hopefully) is in low-risk, low-reward instruments, because he had a shorter time horizon than you do. To most people, this reason alone would be enough to liquidate the existing portfolio sooner rather than later.

Once you have a check, you can invest it any way you want to... if you want to keep your Dad's portfolio because you didn't think it was time to sell, you can take your share of the proceeds and essentially buy it back. But your financial advisor will tell you that you should be more aggressive, because time's on your side, and you should listen to him.

20 years from now, it won't really matter whether your father's estate was worth $750k, $1M, or $1.2M when it was divided amongst the heirs. But the way you and the other relatives treat each other during this time will likely color your relationship forever.
posted by toxic at 8:56 AM on June 21, 2008 [3 favorites has favorites]

The people who left this inheritance were there to support them when they were our age, and we no longer have any sort of safety net. Side question: is this incredibly selfish of me?

So you have an education, a job, no responsibilities, your whole life ahead of you, the opportunity to receive $150K to invest as you please and you want to have a pissing contest with your siblings about the inequities of life? Furthermore, that 20 year age gap = 20 years of compound interest by the time you're their age.

Don't let a sense of entitlement get in your way, particularly in the way of your relationship with your siblings. It's just money, it's a good amount of money, be grateful for it, use it well.

On preview: what toxic said.
posted by forallmankind at 9:27 AM on June 21, 2008

Every day that you choose to keep an investment is equivalent to a decision to buy that investment. So the way to think about it is if you had $1 million in cash today, would you be so certain of those stocks and the house value going up that you would take your $1 million in hand and spend it to buy those identical assets today. If the answer is no -- that you could think of better ways to invest the money -- then you should sell immediately.
posted by JackFlash at 9:28 AM on June 21, 2008 [1 favorite has favorites]

We're talking about 1 million dollars. You need an attorney-financial services team to take care of all of this. The tax implications in these things could make your head spin. Be smart, accept your anxiety about this and don't ask internet people for advice. MeFi mail me if you need a referral in the states of Virginia, Maryland or in the District of Columbia.
posted by Ironmouth at 10:59 AM on June 21, 2008

The house is only one quarter of the estate. But it's the part that will be a headache if you hold on to it.

Sell it.
posted by zippy at 11:32 AM on June 21, 2008

The estate is almost certainly going to be in probate into 2009 in any case.

My understanding is that housing prices are very low

My sense is that this isn't true. It's more true to say that house prices a year or two ago were unreasonably, even outlandishly, high in much but not all of the US, and that prices in those areas are not low. Just not as high.

One of the four who wants to eat the whole cake now will have power of attorney by Monday. If the two of us strongly disagree with his opinions on how to handle the assets, what happens?

You mean that that person will be the executor, in accordance with the will?

If you dislike what he's doing, you can sue him.

But you could achieve similar results without waiting for years for it to wend its way through the court system by simply writing a very large check to a randomly-selected lawyer and kicking your siblings in the crotch until they hate you.

The will is what it is. Not much point in second-guessing it.

Being executor carries serious responsibilities. Liquidating quickly gets rid of those responsibilities and lets the executor carry on with his life.
posted by ROU_Xenophobe at 11:58 AM on June 21, 2008

The first question is, who is the executor of the will, and by what right does that person assume that title. If the will didn't specify:

a) It was a dumb will.
b) You need a lawyer if you are worried that the will won't be executed according to your wishes.

If the will specified who the executor is, that person will make the decisions you're asking about. The will may or may not have specified that the executor has to listen to your input. You can always contest the decisions of the executor. For that you need a lawyer, a willingness to wait several years, and a willingness to significantly diminish the value of your final inheritance with huge legal bills.

As far as the house goes, the value of a thing is what it will bring on the open market. If the market really expected the house to be worth more next year than what it could sell for now, it would sell for more now than it does.

The house needs to be appraised promptly to avoid capital gains issues in the future.

Finally, here is my opinion: Owning 1/6th of a house is a nightmare scenario. Are you prepared to start contributing 1/6th of the costs of maintenance of the property? Are you prepared to enter into a fiduciary relationship with the other 5 people who own the house, consulting with them and obtaining agreement on every maintenence decision, every rental decision, every upgrade demanded by the tenant, every eviction decision, etc etc ad nauseam? I would pay a high premium to not be forced into such a relationship, even if the other 5 people involved were my best friends and morally pure to boot.

As far as the stocks, no reason your share has to be liquidated. Your cost basis is the market value on the day the decedent died; you'll start accumulating capital gains and losses from then on. If you don't understand what this means or how it could benefit or harm you, you need a) an accountant b) to seriously consider just letting the executor liquidate the assets for you.
posted by ikkyu2 at 12:20 PM on June 21, 2008

If you dislike what [the executor] is doing, you can sue him.

But you could achieve similar results without waiting for years for it to wend its way through the court system by simply writing a very large check to a randomly-selected lawyer and kicking your siblings in the crotch until they hate you.

This is so true that it bears repeating. Having lived through this process once, you are well advised to avoid it by any means at your disposal.
posted by ikkyu2 at 12:21 PM on June 21, 2008

I think you should stop looking a very nice gift horse in the mouth and listen to what older people with more life experience are telling you.
posted by fshgrl at 2:00 PM on June 21, 2008

Sell up everything now and split the proceeds. If the will specifies who gets what percentage, fine, otherwise divvy it up equally between the inheritors. It really is so much less stress on everyone, you included, and your future relationships with the other inheritors will be much easier.
posted by anadem at 8:10 PM on June 21, 2008

As others have said, the stock portfolio is easy-- if you believe that they'll go up in value then either invest your money right back into them when you get your cash, or get your share of the stocks transferred to you rather than liquidated. Check with the financial advisor about the taxes and fees related to this, but in general, it shouldn't be a problem to let the people who want cash from the stocks get cash while those who want stocks can have stocks.

The house is harder... but if you and the other person really believe housing prices are going to go up and want to hold onto it, why don't you two take the house as (most of) your share of the inheritance? Then the other four can get their cash from the stocks and you'll have the house. (Again, run this by someone with financial know-how who'll take the various transaction costs into account to make sure the split is fair.)

In other words, I think it'd be fairly easy for the Four to get cash while the Two either keep their money in stocks OR in the house but not in both.

In general, if you're asking whether either the investment value or the real estate values will go up, well, no one knows, that's just speculation. Even educated guesses would just be speculation, but we can't even make educated guesses without knowing what's in the investment portfolio and what the local housing market is like.
posted by EmilyClimbs at 8:12 PM on June 21, 2008

As far as the stocks, no reason your share has to be liquidated.

Curious: wouldn't that depend on what stock it is and the distribution of stocks in the portfolio? Once it stops being Dad's stocks and starts being Dad's estate's stocks, I can at least imagine circumstances where the executor would have a fiduciary duty to reinvest the portfolio in some way. Like, if the current portfolio doesn't meet a prudent-investor standard because it's 100% Ford.
posted by ROU_Xenophobe at 8:16 PM on June 21, 2008