I feel like things are starting to get really bad out there. It is definitely two different worlds, those who have their jobs, houses and investments, and those who don’t. Lose your job and good luck finding another one that pays. Yet people in the upper income jobs, well invested in the stock market are flying high.
Thinking about that, I went through my pantry looking for food bank items, as I’m not much of a cook and end up buying healthy foods that we don’t eat. I thought there would be plenty, but everything but two items were expired (they don’t accept expired items). I did get four full grocery bags of things to throw away, including some items from 1999. This is embarrassing, must do better!
I think it can be easy to discount the amount of time and effort it will take to learn how to deal with what everyone admits is a complicated, illiquid asset. Another possibility with DSTs and other RE assets is for the value of the assets to crater.
I found the thread on Bogleheads and read through it. White Coat Investor (a great poster who also hosts his own financial website) captured a key issue with one of his replies:
“We have more than a dozen private real estate investments. I asked my wife how many she wanted to own if I died next year. She said none. I was actually surprised because she’s perfectly fine with them while I’m alive. But it has changed our plan. Barring an early death, we now probably won’t own any by the time I die.
You might try some version of that question to your kids, but you’ve got to do the education piece first for sure.
"Would you rather get “$2 million in illiquid commercial real estate that will require some work and hassle or $1.2 million in conventional liquid investments when I die?”
Thanks so much for sharing. Your experience is what I fear. Real estate and apartments has been our business for over 40 years and even longer for other family members and they have provided a great income most years. Being a landlord has gotten harder and i see why so many want to sell to large REIT type of companies. The properties have increased tremendously in value so large capital gains and also some recapture of depreciation is a large number. We have done some 1031 exchanges into some newer properties but that doesn’t provide an off ramp.
To me, having things at home is a saving me time from running out of something when I don’t want to take the time (and annoyance) with a run to the store. It is not worth sweating it out. If I had things better organized, I would not run into having anything here expired. If I had further to travel to stores that would also be a cost savings. But time is money, and we don’t know when our hourglass will run out of sand.
Had my parents’ apartments been in the larger city (state capitol and large university) we would have kept them and continued to run as a family. Fortunately, there was a fellow and his son that purchased two buildings with cash, a little under appraised value. A third building was sold earlier at our full asking price to the same buyer that purchased business property adjoining. Parents had a A/B Trust (signed off in 1995, with second parent dying in 2010) and we had no inheritance taxes. Once parents’ home was sold (and I took care of a Florida land property) it was all closed out.
I’m not actually sweating it, I’m regretting not having four bags of groceries to go to the food bank instead of into the trash can, and kind of disgusted with wasting money. I have a grocery store less than a mile away that I go to every other day. I just haven’t been paying attention.
I think if I was in my twenties, I would have been young and foolish and would have gone for the easy money. In my thirties and older, given a choice between a significant amount of increased money, and tax free? You bet, I would have made the effort to learn, whether it was complicated or not.
I’m the opposite. Money is awesome, and I’d love to have more. However, my usually high functioning brain has an aversion to learning complicated financial stuff. It can do calculus, it can solve geometric proofs, it can write a beautiful essay … but a cone of cluelessness descends upon it when complex financial topics are presented to it. I would rather have a root canal than be in charge of something like that. I know basics, and I know enough to know if my financial advisor is handling things properly, but it ends there. I’m sure I’m giving up some money as a result, but fortunately, I will be okay. Just offering a viewpoint from a usually smart person!
I get it. My mom is the same way, actually much worse, and it’s not just because she is elderly. Math and metallurgical engineering major, engineer, and I don’t think she’s ever even understood what a credit card is. Told me she was invested in bonds for 20 years, but it was actually a money market.
I’m all about simplification, and I don’t desire to put our money in any complicated financial vehicles. But in this scenario, where the work was already done by a parent, it is important to him, and all I have to do is learn about it, I could do so.
Many could do so…but wanting to or wanting to keep the investment is a completely different matter.
The issue from the thread was that the stepfather wanted to make any changes and decisions regarding the highly illiquid DST trust holdings decided in complete agreement amongst three adult children in regards to a relatively small amount of money to be split amongst the SEVEN grandchildren (valued presenting at 1.25 million - who knows the future value, if any).
I think many people would decide the juice wasn’t worth the squeeze. The vast majority of respondents on the actual thread counseled the stepfather to rethink his plan, simplify the trust, or leave explicit written directions with the understanding that most people will just want to reduce complexity and would most likely unwind the investment at a loss, engender bad feelings between the siblings if they couldn’t come to agreement, or a mixture of both. Also, the stepfather and several on Bogleheads also recognized that it was likely this wouldn’t become germane to the children for decades and that rules and tax implications could/would most likely change.
This wasn’t about a parent asking one child to learn about their complicated, illiquid investment to be ready to handle it upon inheriting. It was about asking 3 adult children (all married, scattered to the winds with young families of their own) to come in person all at the same time to learn about complicated, illiquid investments and come together after both parents died having to agree unanimously to make any decisions regarding the trust. I read it and all I could think was “Yikes”.
Personally, I loved learning about such stuff, but then rejected the concept. What good is an asset if it’s illiquid for a generation or more? (I was born in the projects, so locking up $$ for years is a non-sequitur.) Tax-deferred is not tax free. Stepped up basis upon death applies to all assets, including equities. (Note, stepped up basis can be changed by Congress at any time, and Biden even asked Congress to do so.). And even if stepped up, it’s still illiquid. Finally, I’ve evolved into the Total Return camp, not income streams (some of which is a return of my own capital).
To me, Real Estate is just another asset class, with its own standard deviation (to market) and risk profile. Just believe that the benefits are over-sold.
Now, that I’m counting down the years, I’m making everything as simple as possible for Spouse should I get hit by a bus tomorrow. (Spouse worked in IB for many years, so could manage a complex portfolio, but why? Just no need.)
It sounds like the stepfather is trying to make it way too difficult. A DST isn’t that complicated. Of course he’s not going to want to cash it in early, pay all the taxes and pay a significant early exit fee. If he doesn’t want to pay the taxes himself and wants them to benefit from the step up in basis, he can just keep it in DST’s until his death (better yet to 721 it into a REIT if that’s an option), and when he passes away, they can make the decision whether to sell and take the penalty, or hold until it goes full cycle (can’t be more than ten years). It doesn’t have to be complicated at all, but it sounds like he is being unneccessarily overcontrolling.
I agree with simplicity. Not everyone is interested in complicated transactions, and even if they are at one point, eventually many of our brains turn to mush. Just for me personally, if I was presented with something complicated, I would learn enough about it to figure out whether it was worth continuing or cashing out.
My MIL is one. She & FIL added H to their cottage deed as joint tenant with right of survivorship ten years ago; SIL will receive additional money from their estate (market value of the cottage) rather than sharing the cottage. After FIL died, she decided that it should remain a “family” cottage - she added a stipulation in her trust that SIL and nephew will each get a week of their own at the cottage every summer. Since the cottage passed outside of the trust, there is no way to enforce that - the lawyer explained that to her, but she wanted it added, anyway. It’s not like we wouldn’t let SIL or nephew spend time at the cottage. She is just a controlling person, and she apparently figures she should be able to control from the grave.
My husband inheirited some kind of odd private investment thingy, which had been split 5 ways. He had more time and did the investigations on ways/timing to get out of it. I don’t remember the details, but it was one of the things where it helpful to have coaching from our FA.
It’s interesting - Orlando is #1 but #76 for quality of life.
Don’t you want that in retirement??
Miami 94th
Atlanta 104th
Both are very high.
I’d prefer Naples or Ft Myers or Sarasota.
So this is another - we all think differently rank.
Can’t get better than TN - I mean, no income tax and my property tax just went up from $3300 to $3800 - they assessed the house at $925K. Even in FL, it’d cost a lot more.
I look at these rankings, and they crack me up. What a scam to sell a magazine. Everything depends upon ones own personal situation. #1 for activities, San Francisco? Kind of depends upon what you like to do. #1 for health care, Missoula. Huh? Okay.
Cities in Washington are rated very low because of affordability. But for people who already live here and have homes, who cares? Property taxes high, sales taxes are high, but zero income tax.So it all depends. If you’re well off, lucky you, we’re the most tax regressive state in the US.
The reality is, there’s an individual formula that might work for people, but it’s based upon their own situation. Sure, it might be cheap to live in a particular place, but if you hate the weather or aren’t interested in the politics, it’s unappealing. If costs aren’t an issue, you have different options. If your income is taxed or not taxed at a state level, completely different considerations.