Option A: $120k cash, inherited at a stepped-up basis. So cap gains would only be on the difference between the asset's value at someone's death and the value when it's sold (likely to be very little).
Option B: approx. $12k/year for some period of time, that will eventually roll into cash at a later time (eventually, the asset will be sold).
This is straight up cash in a savings acct type of thing? Are there tax implications?
It's shares in commercial real estate. Wasn't sure if that part mattered. For purposes here, it would require little to no hands on work though. So not like managing the property.
Tax implications are pretty much one-time or then ordinary income from the cash it throws off.
Got it. Do you have big purchases coming up that you would like to use this money to cash flow (e.g., new car, roof, down payment on house)? Is there any risk of this losing significant value in the next 10 years? If it did, would you be upset? These are the kinds of things I would consider.
Got it. Do you have big purchases coming up that you would like to use this money to cash flow (e.g., new car, roof, down payment on house)? Is there any risk of this losing significant value in the next 10 years? If it did, would you be upset? These are the kinds of things I would consider.
Actually, it's (hopefully) many years away. The question was posed to me today bc they are redoing the trusts and there is a decision that needs to be made over what to do with the properties.
The value has been relatively stable for like 20 years. I doubt it will go either up or down much.
Is the present value of the annual cash payments roughly equivalent to the lump sum?
If I was talking about an inheritance, I think I'd personally take the lump sum, and invest it or whatever I wanted. I do know people who would be better off getting annual cash instalments, though.
Well, if the property is kept for 10 years, then the payment will equal the current cash value. After 10 years, then you have the cash coming in plus you still have the value in the property.
Side note, but I really have a hard time thinking about this without my feelings coming into it - this property was bought by my dad (and partners) when I was 4. I grew up working on it. Every Sunday morning, I had parking lot duty. I did landscaping there, I did tenant turnover work. I have tried to buy into it before - but I couldn't come to terms with the partner selling his shares. My father remarried when I was 18, and my older step siblings have never even been there. I'm kinda annoyed that it's being split in thirds - but I gave the numbers above on my third.
Since you have to split it and are already having strong feelings about it, I would pick the first option. Take the money so you don't end up tied in a shared situation for an extended period.
The reason I didn't give the property details in the OP is that this is not your typical real estate owning with relatives thing. It's more like shares in an LLC. And the LLC was established many, many years ago (actually, was an LP for years and then switched over. By the time it gets to me, it'll only be about an 8% share in the business. Hence why it really is more like cash vs income stream. All the dramas around the real estate part happened in the 80s. Now it's just pure profit and a manger takes care of all the hassle.
FWIW - we actually choice option B. It's throwing off 10% of its value per year, and the underlying asset will keep its value. There is little I could invest in that will return a consistent 10% per year. And it's a no work investment. I grew up with this business, the other partners are like uncles to me. But I was curious as opinions here.
FWIW, I think your rationale makes sense. I am probably jaded by what is currently happening in my family (three of the older generation inherit a very profitable apartment complex with manager in place, but one refuses to do business with their siblings).
@konapuppy - I do see your point. I'm trying to get away from the feelings on it in general. But, truth be told, I'd likely put it in another real estate investment anyway. And that price would be limited to residential, which is far more drama that commercial. It is an interesting question though. Perhaps I should have posted on a weekday to get more discussion on the pure money issues