Distributing Estate

Sep 10, 2007 4 Replies
S

I have come across this senario and would like some comments.



This is as I understand the situation. Friend's parents died, leaving a large farm to all offspring as beneficiaries. One of the offspring is going through divorce or just got divorced and wishes to keep estate settlement from exwife. Executor has worked with this request and set proceeds of estate in a S Corp with all the beneficiaries as owners. The beneficiaries wish to continue to hold the farm land as an asset and draw income from the lease of the land, except for one who wants to cash out. The S Corp does not have sufficient cash to pay for an owner to cash out.



As I see it, the obvious options are:


  1. Have the other beneficiaries/owners buy out the ownership of one who wants to cash out.
  2. Find an outside buyer for the ownership interest
  3. Have the S Corp attempt to finance cash to party who wants out.
  4. Sell part of the land to pay beneficiary who wants out

What else can folks think of?



Thanks



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C

What state are you in? I'm pretty sure that here in (community property) California inheritances are separate property as long as you don't co-mingle them.

Good Luck to all.

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D

What do the corporation bylaws say about the matter? Surely they must address this issue.

Dave

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S

The estate is located in Indiana, which is not my state so I'm not familiar on the details.

Thanks

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K

How did this S corp come about? In the absence of the divorce was the S corp still supposed to be established or was it done solely to avoid inclusion in the divorce? If the later, did the other offspring knowingly and willingly go into this situation?

If the relevant wills or trusts set in motion the S corp, then the bylaws should clearly indicate how members can leave, who can join, how capital is injected into the company, and what is to be liquidated to handle liabilities (and in what order). If this was done solely to help out the divorced offspring, I see a potentially huge breach of fiduciary duty by the executor.

Tell your friend to read the bylaws of the S corp. Also warn him that if he doesn't want to face this problem everytime someone in the corp dies, they should consider building in a liquidity source (such as life insurance, investments, etc). In just a few generations there could be dozens of beneficiaries. What are the chances they will all see eye-to-eye all of the time?

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