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Irwin Law
Irwin Law, Lawyer
Category: Real Estate Law
Satisfied Customers: 6845
Experience:  Lawyer- Broker 30+years - foreclosure, short sale, liens, title attorney.
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I am 82 years old. My wife and i owned a home jointly(50%).

Customer Question

I am 82 years old. My wife and i owned a home jointly(50%). Our wills gave each a life estate in the home to the survivor then our 50% interest would pass to our children( it was a second marriage for both). Now my wife has deceased and i would like to purchase the other 50%of her interest from her sons so that I may leave 100% of the home to my children. Her sons are agreeable to sell their interest. How do you calculate the present value of their interest. The home is appraised for $650,000. Bill Roark
Submitted: 3 months ago.
Category: Real Estate Law
Expert:  Gerald-Esquire replied 3 months ago.

Hello,
Thank you for using Just Answer. Please bear with me as I verify somethings for you. I will respond fully shortly. Thank you for your patience

Expert:  Gerald-Esquire replied 3 months ago.

Hello:

Thank you for your patience and thank you for using Just Answer.

I want to provide you the best service I can. Please feel free to ask any follow up questions you have.

I am an attorney with 30 years of experience; I hope to provide you information that will help you in resolving your question.

What is giving you concerns, what part of the calculation are you having misgivings about?

Kind regards,

Gerald

Expert:  Gerald-Esquire replied 3 months ago.

In the meantime let's cover the basics.

You know the property is valued at $650,000.00 You can use your life expectancy for the length of term.

You will have to estimate the rate of return based on the increased real estate values in your area. That can be determined through an RE Broker or Appraiser, or you can pull the number off of Zillow.

This gives you the three critical numbers to plug into your present value calculator.

Your wife's children would be entitled to 1/2 of that amount.

If there is some other area that you are stuck on please let me know.

I hope the information I provide is useful to you. I want you to be comfortable and satisfied with my attempt to assist you. Please, if you have ANY follow up questions, feel free to ask. Please note that I am generally unavailable Friday evening through Sunday.

Please do not forget to give me a positive rating. It adds nothing to your costs but it helps me greatly. Thank you.

If you are dissatisfied with my response PLEASE let me know before giving me a negative review so that I may try to be of better assistance. Or if you prefer, let me know and I can “Opt Out” and your question can be re-posted without additional cost to you. I will be fair to you and only ask the same from you.

Good luck.

Please note: Information is educational and not given as legal advice. Only your local attorney can give legal advice. I can't establish or accept an attorney-client relationship with you. All posts are available for public viewing.

Kind regards,

Gerald

Expert:  Gerald-Esquire replied 3 months ago.

Hello:

Actually, we are over thinking and over complicating this. Since you are giving them money now they will have the opportunity to invest this money and earn a comparable growth. So they would only be entitled to 1/2 of the current value.

I am sorry that I confused myself as well as you. But there is no need to jump through any calculations just use the current value of the house.

Good luck.

Kind regards,

Gerald

Expert:  Gerald-Esquire replied 3 months ago.

Because I fear I may have confused the issue unintentionally and would like to make sure you are clear I have proposed an OPTIONAL premium service phone call at a deeply discounted rate. I don't want you to spend money unnecessarily, so feel free to decline the offer. BUT if you would like to discuss this directly I am happy to do so,

Kind regards,

Gerald

Customer: replied 3 months ago.
Gerald; Your response that the present value of their interest is only 50% of the appraisal is not consistent with what i have seen on life estate tables. I would like to believe that is correct as my buy out price price would be low, however at age 82 the life estate tables show a figure of .40295 as a life estate value and a figure of .59705 for a "remainder" value. I do not understand the real meaning of those no.s but neither is 50%? Do you multiply the .40295 by the appraised value or the .59705? William
Expert:  Gerald-Esquire replied 3 months ago.

Yes. BUT the mistake we were both making is the value of the life estate if they were buying you out. They are NOT buying you out it is the other way around. SO that means you are buying their interest in present day values. There is no future value premium or discount involved.

The life estate is preventing them from getting the value right now. So there are opportunity costs that the heirs are experiencing. Those opportunity costs are offset by the presumed increase in value the property may have during the remainder of your life.

BUT if you pay them now they have those funds to invest.

I hope I am being clear, because I confused myself at first by not fully thinking through what you were asking.

You are buying their interest now. So the present value of their interest now is their one half share current market value.

I hope this additional information is helpful to you. If you want to speak directly we still can. I have discounted the call significantly.

Kind regards,

Gerald

(Please do not forget to rate me – click the five stars. It adds nothing additional to your costs, but it helps me greatly. Plus it is good Karma for you. Thank you.)

Customer: replied 3 months ago.
Gerald; I fully understand your response but do not believe it is correct. At my age of 82 no would accept a present offer of 50% of value for property that will likely increase in value each passing year. I certainly would not. The 50% you suggest seems arbutrary. What about the accurarial tables that show .40294% at age 82 and a " remainder interest table" of .59705% whatever that means? The table shows .50441% for age 76. I dont understand who gets the .40295% and who gets the .59705%? I know those tables are the correct ones; just do not fully comprehend.. That"s what i asked for. The exact no. is critical..
Customer: replied 3 months ago.
Talking will not help if your answer is incorrect. or you do not fully comprehend
Expert:  Gerald-Esquire replied 3 months ago.

I will opt out so that another expert will help you. BUT I believe I am correct. You are looking at tables to help you assess what the life estate is worth to you if they were to buy you out now.

But you are doing the transaction the other way. They have the remainderman interest in the estate. They have to wait for the money at the time when you pass.

The 50% came from the fact that they have a 1/2 interest in the remainder man. If they were selling that interest to someone else they would have to sell it at a discount because money tomorrow is not worth money today.

Nevertheless, we got off on a misstep - so Perhaps you will have more confidence in another expert. I will opt out so that another expert can help you at no extra charge to you.

Please do not rate me so that the question will remain open for another expert.

Kind regards,

Gerald

Customer: replied 3 months ago.
Gerald ;Thank you. I understand that they have only a 50% interest in the property I remain a 50% owner to pass on to my children thus i am only purchasing their 50% interest so the question is what is their current value of a $325000 valued property.
Expert:  Irwin Law replied 3 months ago.

Good morning. Another expert here, and perhaps I can shed some light on the situation, if you wish. Basically, Gerald was, and is correct. If I understand correctly, you now hold a life estate interest in 1/2 of the property. Upon you death the fee simple interest will pass to your deceased spouses children. You now wish to purchase their residuary 1/2 interest which has a current fmv of $325,000, BUT, you feel that it should be reduced by the present value of your life estate. Is that correct? If so, send me Reply and we'll go forward from there.

Customer: replied 3 months ago.
Irwin; Yes, that is correct. The current market value of their 50% interest is $325,000. What should be the correct amt. to pay them today for their future interest? This is something i prefer that my children do not have to deal with at my death.
Expert:  Irwin Law replied 3 months ago.

Hi Bill: there is no easy answer, so I will simplify your situation by saying it's a balancing act. If you pay them full value $325K today, you'll be giving up cash that could earn you 2% per year or more if you hold onto it. Figuring five years of return at 2% return, you will give up over $30,000 in income (taxable?). Just looking at the income standpoint, I'd say that you wouldn't pay more than $295k today. That is how I would value it for inheritance tax purposes, or I would use the standard table, whichever is greater, and I really don't have time to figure that out today. However, you will receive appreciation in one half of the value of the home for five years, which is tax-free. Wouldn't that offset the cash loss. The other side of the coin is the seller would see the same numbers. If their half interest will grow through appreciation during the rest of your anticipated life time, and they don't need the money for anything now, why would they be willing to discount the FMV for the value of your life estate. They have to weigh the appreciation prospects against what they can do with $325k over the next how many years. There is no pat formula that's going to answer those questions because they depend upon the individual circumstances of the parties. To me the key factor is the rate of appreciation of the property that one can expect between now and whenever. To both you and the children it is an investment. Do you acquire it for future growth? Or do you sell it, figuring you can use the money and get a better return. It's a matter of negotiation between you and them. Have a great day, Bill.

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Expert:  Irwin Law replied 3 months ago.

Hello again Bill.

I hope that this ANSWER has been helpful. Do you have a follow up question?

Customer: replied 3 months ago.
Irvin;I fully understand the variables; ie what is my life expectancy, how much will the property appreciate, and what can be earned on the money i advance ( or my investment loss by advancing the money). I have known those variables from the beginning. However there are "life estate " charts (acutarial charts) that take all those considerations into effect to give a finite dollar of a life estate; no guess work. I just do not know how to interpret the chart. I have already given you the no; ie at age 82, my age, the life estate percentage is .40495%, the remainder value is .59705%. All i have been asking is which of those percentages apply for the buy out price. This should not be a difficult question if you have any experience in life estates.All the actural work has already been done.I though i made this easy for you. Gerald seemed to confuse the issue with a 50% guess.
Expert:  Irwin Law replied 3 months ago.

All i have been asking is which of those percentages apply for the buy out price. Hi Bill. Well, remainder value, by definition, is the value to the remainder owner, i.e. her children. Therefore, the .59705 would be used for that valuation. The life estate percentage is what Medicaid would use as the asset value to an applicant for assistance. Does that get it?

Expert:  Irwin Law replied 3 months ago.

Hello again Bill. Is there Anything else you wish to know? I didn't do the math, because I presume that you can do so easily yourself. If you want me to, please let me know. I will be on and off-line all weekend.

Expert:  Irwin Law replied 2 months ago.

Therefore, .59705 x $325,000 = $194,041.25 would be The actual value of the remainder interest per the life estate tables.

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