Can a Beneficiary Buy Another Beneficiary's Interest in Property Held in Trust

[volleybum]

My question involves estate proceedings in the state of: Minnesota

Please excuse my lack of specificity. I'm asking this question for my wife, who only partially understands the situation, but I will provide as many facts as possible.

My wife and her sister (the only other sibling) participate in what we believe is a living trust involving partial ownership of their parents' house. I think the idea is that both my wife and her sister put money into paying off their parents' mortgage, and now as time goes by the ownership of the house slowly transfers from the parents to my wife and her sister. At the end of this, my wife and her sister will both own the house equally.

The house is depreciating in value due to surrounding properties depreciating (the neighborhood isn't what it used to be) and my wife is wondering if it's possible to "cash out" of her portion of ownership over the house at this time. Essentially her sister would buy out her stake in the property. Is that even possible?

Again, we're in need of some education on this topic and I apologize if what I'm saying doesn't make much sense. Any replies will be appreciated.

Thanks.

[harrylime]

Are her parents still living?

If they are, this would be a very unusual arrangement. Is your wife actually making payments? If she is, I would think that she would have more information about what is going on. What does the deed actually say regarding ownership?

[volleybum]

Are her parents still living?

If they are, this would be a very unusual arrangement. Is your wife actually making payments? If she is, I would think that she would have more information about what is going on. What does the deed actually say regarding ownership?

1. Her parents are still living.
2. My wife is not making payments. About 10 years ago, my wife provided $25K to pay off their mortgage and remodel the upper level. 10 years prior to that, my wife's sister put something like $70K toward a remodel (addition). At this point the property is held in trust and ownership will end up split equally between my wife and her sister.
3. Neither of us have ever seen the deed. I will try to find out, because that's an excellent point.

Here is some back-story that I didn't include initially because it's confusing. But I'm wondering if there are ramifications.

My wife and her sister were both adopted by my in-laws, and were born from different biological parents.

When my wife's sister was born, the MD botched the delivery leaving her with a severe mental deficit. She is classified as special needs. There was a settlement on which she currently receives payments. It sounds like she will continue to receive these payments for at least the next 7 years or so (she will be 35 years old at that time), but I've also been told they will continue for life. The amount is significant. Regardless, this settlement occurred prior to my in-laws adopting her. Currently a trust officer oversees these finances.

In the near future, my wife and I will be signing guardianship papers for her sister. I don't know if this will take effect immediately or when my in-laws pass away.

I have two concerns at this time. 1) I'm seeking an answer to my initial question. 2) I have no idea who controls my sister-in-law's trust, and my wife and I get the impression that her parents know far less about the situation than they should. Specifically, we're trying to figure out if my in-laws control those assets or not. We are concerned because with the amount of money supposedly available to her, my sister-in-law's living situation, health, socialization, and overall stimulation could be (and should be) much better than they are. She is not in a healthy situation. But I'm beginning to digress. Suffice to say our definition of her "best interests" differ significantly from my in-laws', and possibly from the trust officer's.

I'm not sure if that muddies the waters or clarifies them. Again, I'm definitely open to conjecture and brainstorming to help me wrap my head around the situation.

Thanks.

[jk]

yes, it can be done. There are some ways simpler than others and some ways with less chance of causing problems than others. This is something that should be addressed very specifically by an attorney who can review all of the information and then suggest a direction to take.

[volleybum]

yes, it can be done. There are some ways simpler than others and some ways with less chance of causing problems than others. This is something that should be addressed very specifically by an attorney who can review all of the information and then suggest a direction to take.

Well that's promising. Thanks very much for the reply. Should I be looking for an attorney who specializes in estate planning, or real estate law, or....? Can you give me some specific guidance there?

[jk]

Well that's promising. Thanks very much for the reply. Should I be looking for an attorney who specializes in estate planning, or real estate law, or....? Can you give me some specific guidance there?

given the various methods possible and no idea how the trust is structured or how any particular party may or may not be involved, attorneys in either or both of those areas of practice as well as an attorney in general contract law would be someplace to start.

[harrylime]

1) In the typical living trust, the owner(s) of the property create the living trust and transfer property to the trust. The creator(s) of the trust generally remains the trustee(s) while living. The trust document establishes who the beneficiaries will be when the creator(s) of the trust pass away. It would be an unusual situation where "... as time goes by the ownership of the house slowly transfers from the parents to my wife and her sister." That would mean executing deeds every so often to adjust the ownership interests of the living trust, you wife, and her sister. Not very likely. So, check the county records for the latest deed.

2) Now that you have explained you wife's sister's situation, you introduce another complication. For your wife to sell her interest, there needs to be a willing and competent seller. Where would the funds for the buy-out come from? The trust established for your sister-in-law? The trustee has a duty to look out for your SIL's best interests. That would mean evaluating whether a buy-out makes sense and, if it does, to negotiate the best terms possible.

3) If you and your wife enter into a guardianship, you need to be careful about any conflicts between your SIL's interests and your interests.

[llworking]

1) In the typical living trust, the owner(s) of the property create the living trust and transfer property to the trust. The creator(s) of the trust generally remains the trustee(s) while living. The trust document establishes who the beneficiaries will be when the creator(s) of the trust pass away. It would be an unusual situation where "... as time goes by the ownership of the house slowly transfers from the parents to my wife and her sister." That would mean executing deeds every so often to adjust the ownership interests of the living trust, you wife, and her sister. Not very likely. So, check the county records for the latest deed.

2) Now that you have explained you wife's sister's situation, you introduce another complication. For your wife to sell her interest, there needs to be a willing and competent seller. Where would the funds for the buy-out come from? The trust established for your sister-in-law? The trustee has a duty to look out for your SIL's best interests. That would mean evaluating whether a buy-out makes sense and, if it does, to negotiate the best terms possible.

3) If you and your wife enter into a guardianship, you need to be careful about any conflicts between your SIL's interests and your interests.

I will agree with this advise, but be even blunter.

Selling an adult, who needs a guardian, an additional share in a property that your wife wants out of because its depreciating probably would border on financial abuse. I am not at all sure that the previous 70k didn't border on financial abuse.

[harrylime]

For your wife to sell her interest, there needs to be a willing and competent seller.

I meant to say "buyer" rather than "seller."