Here's a strategy for 3 parties. It's usually 2 parties.

Select one person to divide the assets as equally as they can so that people would be indifferent as to who gets what according to value.

After it's divided into three parts, the other two people get their pick and the one who divided the assets gets the remainder.

This is how you can arrange the division so that it's fair. The person making the division is going to make sure it really is fair because if there's any lopsidedness, the other person will take it.

If you are dealing with rational people any somewhat fair method mentioned will work, if you are not, almost no method will work.

Let each person select one object.

Then sell the rest of the assets and divide the cash by three.

Auction everything . Split proceeds 3 ways.

quote:

Originally posted by Rey HRH:
Here's a strategy for 3 parties. It's usually 2 parties.

Select one person to divide the assets as equally as they can so that people would be indifferent as to who gets what according to value.

After it's divided into three parts, the other two people get their pick and the one who divided the assets gets the remainder.

This is how you can arrange the division so that it's fair. The person making the division is going to make sure it really is fair because if there's any lopsidedness, the other person will take it.

Thats how we would do it back in high school...usually with something 2 people went in on. 1 person divided it in half, the other got first choice.

Before assigning "values", how about having a meeting with the 3 involved and ask, "what would you like"? You might be surprised; some items might have more of an emotional/good memory attachment value to them than economical value. Whatever is left over, than you can either assign values or as mentioned, sell them and split proceeds equally. I have had family members let their heirs walk through and put their names on items they would like. My mother was doing that and I picked 1 item. It's now in my living room. Everyone else can split the rest as far as I'm concerned. She's still with us, but she tried to head off any infighting ahead of time over "things".

Like I said, you might be surprised. The wife and I have tried the same thing. We'd rather see them enjoying things now than waiting until after we are gone. Wife tried giving them a bunch of jewelry that has good value, but a lot of it wasn't their taste or had no 'memory' attached so they didn't want them. She has since sold some off, more to go. Whatever is left (monetarily from the sales) they can split evenly.

a friend passed years ago, his wife and family set up a dollar amount that each could have, and anything over that dollar amount was paid for,

I went in and did an apprasial on all he had, firearms wise, and the family members used those numbers to "buy" what they wanted,

Thank you all for your responses. We haven’t finalized a method, and I’m afraid sentimentality will play a large part, as when I presented some of the options to the family group noted here and by email, there were comments about what an item might mean to a particular person.
I will keep you posted, but I believe this will be a lengthy process. I appreciate all your comments (and I genuinely do ) .

Perhaps you are lucky that the kids may be inclined to fight over things with mostly sentimental value.
That implies that they have fond memories of their upbringing, and the material objects that are associated with those times.
If that's the case, be thankful!

In our family's case, I doubt there is much of sentimental value; old antique furniture my wife got from her family has sentimental value for her, but I think not for any of the three kids.

We have some rental properties in addition to our residence. Assuming that estate tax law still provides for a step-up in basis on death of the first spouse, that would be the time to sell the rental properties at least, to provide cash to the kids to do with as they see fit.

Only one son is likely to be interested in my "hoard" of guns, astronomy equipment, tools, whatever other hobby stuff I have. But he won't have room for it unless he and his wife buy a bigger house.

Our daughter is unlikely to want anything much from her mom; inheritance of fine china or silver settings is no longer a thing.

Our middle son is a mystery to all of us; we just need to make sure he's provided with enough money in a trust so he doesn't become a burden on his siblings.

Sjtill,
I am trying to be thankful. Also trying to get through this with minimal stress.
You commented on rental properties. Could you clarify the “step up” you mentioned if one of you passed away? I’ve been encouraging my folks to sell their rental, perhaps that is a mistake. I’d appreciate further information.

A step up basis is when the value of a property, upon death steps up it's value as it's passed to heirs.
If you bought a house for 50k, and 30 years later it's worth 450k, when you sell it, you owe taxes on 400k of growth. It is the same if you put heirs on the deed before you die. Your heirs will pay taxes on the 400k of growth when you die, since their basis is the original 50k.

If it passes to your heirs upon death, the basis(50k) steps up to the value upon death(450k) and this becomes the basis for the heirs. If they now sell it, there will be zero taxes. Their basis(beginning) value is the same as the sale value. It has stepped up.

You mention sentimentality, which is totally separate from $ value. Some people's brains are wired to equal $, some to sentimentality, and others to some kind of "equal" splitting (e.g. half the fancy china goes to you and half to me)

Each mindset is valid, but can create problems. For things like rare old family photos, I suggest one person keep them rather than splitting them up. Good digital copies can be shared. I would not split up sets of things if it dilutes future use or interest. I regret sharing old family documents and photos with a sister.

$ value is secondary to sentimental value. For example, my father's fancy watch vs a diamond ring that was his mother's. There was no reason for us to get them appraised, as I wear the watch and my sister the ring.

So, here is my suggestion.

1) Proceed with deliberation. Don't do anything instantly, but do have a fairly short deadline.

2) Give each heir the opportunity to state a desire for sentimental items. It may or may not have monetary value. Art, family photos, furniture, personal items, etc. Each person write a prioritized list of their desires. It may be possible to resolve some of these items easily. This is where a bit of slowness is ok. Share the lists, and give everyone a few days to think about it. Do not allow any $ consideration to be injected, nor allow it to be brought up later.

3) Auction the remainder. Guesstimate the fair market value of everything remaining. You don't need to get things officially appraised if you can make a good estimate (ebay, etc). Let's say there is $50k of stuff, $200k of money/investments, and $250k of net home equity. So about $500k. Assign each heir an even split of that as "bid bucks". If there are 5 heirs, each gets 100k to bid with. Then have a family auction. I suggest a written silent auction, and it will have to be done in phases probably. Each person bids whatever amount of their share on whatever items they want. Thus the sentimental person can spend all 100k on grandma's needlepoint, while the value minded person spends on fancy furniture, and another person wants no stuff, just cash.

Only auction physical items at first, not bank accounts or investments. Only items valued less than each person's share is auctioned. In this example the house is not up for auction. Whatever physical items are not taken at the family auction are sold (ebay, an estate liquidation company, sell the house, etc). Pool that cash with the bank and investment accounts. Whatever "bid bucks" each person has left over after the auction is their portion of the residual dollars distributed.

Realize that whatever method you use will result in bad feelings. Conversation up front can help everyone understand their own and others' priorities. I don't have any ideas on dealing with bad faith actors trying to punish other heirs.

A couple of people have suggested assigning values and then dividing the total by the number of people involved to get an individual's dollar equivalent inheritance. This is the method we used when distributing assets among my father-in-law's four daughters. We found it to be easy and simple.

quote:

A step up basis is when the value of a property, upon death steps up it's value as it's passed to heirs.
If you bought a house for 50k, and 30 years later it's worth 450k, when you sell it, you owe taxes on 400k of growth. It is the same if you put heirs on the deed before you die. Your heirs will pay taxes on the 400k of growth when you die, since their basis is the original 50k.

If it passes to your heirs upon death, the basis(50k) steps up to the value upon death(450k) and this becomes the basis for the heirs. If they now sell it, there will be zero taxes. Their basis(beginning) value is the same as the sale value. It has stepped up.

Yes, this is exactly what I was referring to. Don't give money to the government unless you absolutely have to!!

So it's very important that your parents NOT sell real estate but let it pass into their estate.

We acquired rental property through 1031 like-kind exchange procedures. That deferred capital gains taxes on the sale. Under current law, at the time of death of the first spouse, capital gains taxes will be eliminated. "Swap 'til you drop" is the phrase used.

Thank you all again. I have presented these ideas and others; now it’s up to the group how we want to proceed..
And thanks as well for the explanation of the step up basis.

quote:

Originally posted by sjtill:

So it's very important that your parents NOT sell real estate but let it pass into their estate.

Currently, a home that the owner occupies (3 of the prior 5 years) has a $500,000 tax exemption. The first $500k gain is not taxed. Estate taxes do not kick in until about $12 million.

For most people, selling the home prior to death will not trigger taxes.

However, the entire particular situation needs to be evaluated. Medicare claw-backs, IRMAA, the new buyer's cost basis if an heir wants to buy the home, and even family politics.

Either have everything sold and proceeds split 3 ways, or put a dollar amount on all of the items and split the items so the amounts are close in $$$.

I was executor of my mom's estate. She had some nice jewelry. I didn't bother with valuations as far as trying to be "fair", though several pieces were much more valuable than others. We drew straws and picked in that order. We didn't reverse the order. As fate would have it I got second choice, but knowing that one of my siblings really wanted both of the most valuable items, and seeing that one was left, I chose a different one so that sibling could get something that was desired. I didn't really care for myself. I chose things for my kids to have. There might have been hard feelings, but I told my sibs that our mother told me exactly how to divide things up, and I did exactly that. They could consult an Ouija board if they had a complaint. We all did fine.....

If everyone knows exactly what they want .
They can buy it at the sale.

I am with johnny3 eagles.
Have a sale ( auction )

Divide the take up equally.

If it's not worth paying for they won't buy it.

You are not doing them any favors to the individuals or the family any good buy giving away free shit.

I'm late to the discussion, but what we did with my dad's fairly extensive gun collection is estimate a value on each gun, and totalled it up. Then divide by the number of siblings to get a ballpark value for each sibling.

We then gave each sibling monopoly money equal to his share. Then we picked numbers out of a hat to see what order we went in, and number 1 got first pick, but had to "pay" for whatever was picked with his monopoly money. BUT, if someone else wanted that item then they got into an auction like bid off, and high bid got it. So if someone wanted an item badly enough he could spend an inordinate amount of his "share" on that item.

It really worked well, with some horse trading taking place. Everyone felt like they had a fair shot at what was important to them.