Saturday, January 2, 2010

Long Haul vs. Short Haul Models for Family Trusts

Happy New Year to the Extended Eskey Family and to all of the other followers of this blog!

Below is a copy of an email I sent last year. This model still makes perfect sense to me, just substitute 2010 for 2008 throughout.

I'd like to use it as a starting point unless someone has a better idea.

My goal: Paradise 2012! --- Note to self in 2011- perhaps this was overly optimistic. :-) Let's say Paradise 2020.

I think we can get there, but we still have a ways to go. ;-)


From: Eskey, Megan A. (ARC-ID)
Sent: Tuesday, November 11, 2008 12:36 PM
To: The Extended Eskey Family

Subject: Short Haul vs. Long Haul Models

Ok so as I see it, here are our choices.

This is a starting point only..if you see anything here that seems unfair or inaccurate, please let me know.

In simple terms, we are either in it for the long haul (like Dad wanted) or in it for the short haul, since he died so suddenly.

Either scenario works fine for me.

I will be speaking on behalf of Dad, as the head of the Eskey side of the family.

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We will need define a value for Dad's estate based on the 2008 calculations I sent earlier - pain and suffering, rental income, interest income on full value of the estate, interest income on Eskey loans will be included in the delta!

The cost models used for both scenarios will be exactly the same. We will need to determine the fair market value on the townhouse, and the fair market value on rents on the townhouse. The Widow's home in #SEA is hers to do with as she wishes, but the Eskey townhome is to be viewed as a rental property by the family (if not by the state)!

The Widow will have to pay rent on the townhouse in either scenario.

1) Short haul -

The Widow's portion will be based on the number of years she was married to Dad:
1 year - 1%, 2 years - 2%...5 years - 5%. For double-digit marriages that withstand the test of time, those numbers are doubled, i.e., 10 years - 20%, 15 years - 30%, up to the current amount according to state law. In California, that amount is 1/3 to the Widow, 2/3 to the children if there is more than one child. 50/50 otherwise.

The Widow's marriage to my father lasted about 2 years. She has been his widow now more than three times longer than she was his wife.

We'll cut her a few other deals like a 5 or 10 year lease on the townhouse based on fair market value of MB rents on fully furnished 3-BR townhouse, with some increase over time to take into account cost of living increases, and will allow her the use of the timeshares in addition to this amount when we aren't using them…other aspects to this deal can be negotiated.

I think the car was leased, so she can just hang onto it.

All assets will divided according to this model as well.

The Widow gets the car, so we get the timeshares, etc.

This will require some negotiation, but most of the assets will fall to the children based on the Widow's small percentage share.

The children can choose to take their portion out now or leave it with the Widow to manage.

The Widow waives her rights to my father's estate based on the short duration of the marriage, we waive our rights to her own assets, we all shake hands and go our separate ways. I'd like to rent out the townhouse ASAP, as this is not a good time to sell real estate in California. It is, however, a good time to buy everywhere, but that can be discussed later...

2) Long haul - based on real value of the TOTAL combined assets in 2008 terms.

We start by calculating the total 2008 value of the combined estates.

No pain and suffering required…we will assume that the Widow will be making up for lost time over the course of our lives! ;-)

The Widow's portion of Dad's estate is 50%, ours in 50%.

The three Eskey girls will have a choice: we can take our share out now or leave it with the Widow to manage.

In any case we have full rights and exclusive access to our 1/3 portion of that 50%.

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The Widow's portion of her own assets is 50% to be used by her own family in whatever way they choose.

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The remaining 50% of both estates is thrown into a pot called the "Eskey Family Trust".

All of us will have access to that Trust. We will collectively decide on policies regarding investments, loans, use of interest income, etc.

The Widow's rent on the townhome will go into that Trust. She will get 50% rent free as her share, but the remaining 50% will go into the Family Trust based on the fair market value of rents in MB.

.

The same deal will apply to the Eskey girls for our use when the Widow is in #SEA. I'd like to view the townhouse as a family-owned asset and therefore make it available to whomever wants or needs it when visiting our remaining family members in LA.

In any case, the Widow gets the master suite and upstairs bath as her 50%, we will get the two downstairs bedrooms and the downstairs bath as ours.

I like the idea of having one room as a guest room and one room as an office for our use when we come to stay at the townhome and I think my two sisters will probably agree to this.

The Widow can use the office whenever she is staying in the townhome, and the guest room when she has a guest, but we will decorate them and we will expect
her to keep both rooms very clean. ;-)

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First priority items:

Pay off all Eskey family loans, we need to zero out liability.

Our loans can be paid off with our own share of the estate, or borrowed from the Trust at 0% interest, with a payback schedule over 5 years.

There will be a limit to an individual loan from the Trust (eg, $10000) and the 0% interest will rise by 1% every year if we are late on our payments or fall behind.

Loans above and beyond this will have to be voted on by the Eskey Investment Board (Board of Trustees).
The loan ceiling will increase over time if the value of the Trust increases, and will decrease accordingly as well.

We all play by the same rules in this regard. We will need to get everyone medical coverage if they don't already have it. It will be a goal for everyone to eventually cover their own expenses, but if they can't, we will cover it from some sort of "Family overhead" pot. Everyone gets the same deal.

Our goal will be to get that overhead down as the years go on and as we all become more self-sufficient.

In any case, access to medical care, monthly interest income, housing costs...these sorts of things will be our rights as long as they are not excessive. Details around this can be worked out.

We need to be sure everyone who needs it has access to some reasonable monthly income now…$500 seems like a good starting point.

As they become self-sufficient this number can go down.

We will set the limit that we all take out now as being equal to the amount of the loan that the Widow gave to her own daughter for her plumbing.

Repayment begins when we are all in agreement to these terms and conditions, and when we all have complete access to our portion of our own share.

If we get into trouble on any issue and can't decide informally via email discussions, we will call on the "Eskey Investment Board" to vote on the issue.

This can all be done over email.

The Widow as head of the her own brood and I (as the head of the Eskeys) will have veto power, but the rest of the kids will have full voting rights.

The Widow and I will use our veto power very sparingly, very wisely and well, otherwise that power will be taken from us. ;-)

This is now a matriarchy, so the Widow's son will have absentee voter rights only. His vote will be used when we feel that we need his input on an issue - e.g., it is directly related to his own welfare and well-being.

If this seems unfair, we will change the rules downstream and bring her son in as a full voting member, but given that the Widow's family has the strategic advantage today, having the Team 3 Eskey vs. 2 Widow's family seems like a good working model for now! Having an uneven number on the Board will also keep the stalemates to a minimum.

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So..let me know how this sounds, and let's see how it goes. These rules are not cast in concrete and can be changed if the model isn't working very well.

With this model, when the Widow dies, 50% of the Eskey family Trust goes to the Eskeys and 50% goes to her own family.

As long as that is what her current Living Trust says today, no changes will be needed.

The new Trusts we establish will handle the rest.

For a first step, all kids should get 0% interest loans equal to the amount that the Widow's daughter got for her plumbing. We can pay them back when the new Trusts have been established.

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