Inheritance items whose distribution would best be discussed before distribution

[John Holzmann]

It was just two weeks ago that I wrote about advanced giving strategies that could potentially offer you tax deductions worth as much or more than your gift.

I was shocked only a week later when I received an email from my father asking whether my wife and I--or any of my siblings--might be able to help our youngest brother with a "problem"--specifically, providing a place to store a concert grand piano Dad had bought almost 40 years ago and had then given to our brother, on one week's notice, not quite eight years ago. "If you want it, you need to arrange to have it picked up and out of my house before next Tuesday," Dad had told Brother back at Christmas of 2001.

The piano, all of us in the family knew, was supposed to be worth several tens of thousands of dollars. On the other hand, Brother has never been wealthy; he didn't have the cash necessary to move the instrument from Dad's home in Virginia down to Brother's home in Florida. And, to top it off, the house he and his wife owned at the time was quite small for such a large instrument. The piano would completely dominate--indeed, fill--their living room.

But when the offer was made . . . especially considering the manner in which Dad made it . . . Brother and sister-in-law decided to accept.

Scroll forward several years to late 2007.

Brother had suffered several serious financial setbacks. Meanwhile, his mother-in-law became a widow and came to need direct personal care. So Brother and sister-in-law decided to move cross-country to live with her mother--a win-win-win situation all around.

But the piano! What were they going to do with it?

Eventually, they found a college in Southern California that was willing to take the piano as a "loaner" for several years while also covering the costs associated with insuring and maintaining it.

So off they shipped the piano to said college back in early 2008.

And then, last week Wednesday (October 28), Dad writes:

[Brother] notified me 12 hours ago that ________ College requires the space where they had been storing his [piano]. . . . Time is of the essence: It must start to move SOMEWHERE ELSE before the end of this week, which means the order for the local . . . moving company must be placed today so the movers can pick the grand piano up at [the college] on Friday, Oct. 30.

Panic time!

But confusion, too.

Hadn't Dad given the piano to Brother? So why was he inserting himself in the process? And why were we hearing about this need from him and not from Brother?

And the way he wrote: It wasn't at all clear whether he had, in fact, truly given the instrument to Brother or whether he had only "kind of" given it, but (mentally) held control.

I wrote to our CPA:

There is NO WAY Sarita and I can use or store this instrument. And there is NO WAY any of my [other] brothers or sisters can use or store the instrument.

I wanted to suggest that Dad or [Brother] donate the instrument and take the tax write-off. But he has very little if any income at this point in his life, so I can't imagine he’ll get much in the way of a write-off.

But then I thought maybe you would have an idea how Dad or [Brother] could transfer title to a high-tax person or entity who can then make the donation? . . .

But supposing they could find some high-tax entity/person: How would such a person or entity pass any kind of benefit back to Dad or [Brother]?

Is this “simply” a lost cause: “Sorry you waited so long, Dad (or [Brother])”?

Any “quick and easy” suggestions we can put into play today? (The piano movers have to be scheduled today –Wednesday—for a pick-up on Friday.)

Or should I simply leave this one alone?

Finally, no matter what, I have wondered if I should ask Dad—indelicately, perhaps, but importantly: “I'm curious what other property you might own for which it would be beneficial to all parties if you made arrangements NOW for its disposal or distribution rather than waiting till ‘later,’ i.e., after your death?”

What's "funny" (but not really): A few hours after he wrote the alarming email, Dad then sent an email detailing the history of the piano: how he had acquired it, what it had meant to him, why it was important to him, and so forth.

He described how the piano had been neglected and almost abandoned. "Nobody" wanted it. "The wealthy, highly educated families in _______, with their large homes, could afford a better-looking instrument, and the poor folks in _______ [where our family lived] didn't have space for a 'monster'!"

I wrote to Dad:

Of course, there were no “poor” folks in [our community]. They “simply” weren’t quite as wealthy as the wealthier people in [the community he identified as wealthy]. . . .

Be that as it may, let’s face the facts concerning your children: Our homes are either too modest or our living situations too precarious or transient for any of us to take the piano into one of our homes.

And so, I concluded,

I wonder if:

A) We all—but/and, most especially, you—should view what has happened (and is about to happen) with the piano as a good “lesson”: Our failure to plan will, almost assuredly, lead to loss. This piano—that could have been worth tens of thousands of dollars (in tax deductions if nothing else!)—is likely to become an almost total loss . . . because no one was willing to “face the facts” and make plans in a timely manner.

B) How wonderful it would have been for you to have written five or ten years ago, concerning the piano, what you wrote yesterday: “this wonderful Steinway should not be ‘warehoused,’ but USED!!! That was the understanding when I was given the chance to move the piano from the small Lutheran church in ______, to our home in _________ - and it was the same understanding when I gave the instrument to [Brother] as a gift. . . . The piano is an instrument for learning and enjoyment and the entertainment of people: All for the Glory of God!”

–With such a strong statement of purpose and interest and desire in hand, I imagine you and/or [Brother] could have (and, probably—I hope!—would have) made a transfer of the instrument to [the college where it has been stored] . . . or to some other educational institution . . . back [when Brother and sister-in-law] moved?. . . .

C) Perhaps [Brother] can still make a tax-deductible contribution to [the college] or some other institution . . . The total value of the tax deduction will be minuscule compared to what it could have been several years ago if you had made the contribution, Dad, and you had made it while you were still making a decent salary. . . . But . . .

D) Recognizing the loss that this piano is about to become, can we learn from the mistake? Dad, can you learn something from this mistake? As I asked in my postscript yesterday, Dad:

I got thinking: Was it possible that, by seeking to avoid certain hard discussions and hard decisions, Dad had possibly even harmed Brother? (He placed him under quite a load of financial stress. Of course, Brother willingly took on the burden. But still.) Might it have been mutually more advantageous if they could have discussed the pros and cons of holding the piano or selling it our giving it to a charity? As it was, that conversation never took place.

What might have happened if, knowing he would eventually be moving from his home . . . --What might have happened if, at least months—and maybe years before his move, Dad had broached the topic of the piano . . . with Brother and, perhaps, with the rest of us? Might Brother and his wife have found themselves, actually, in a better position than they did as, despite their meager income, they invested thousands of dollars (which they had to pay back over time) first moving the piano to Florida, then insuring it, then paying for the move across the country to the college in southern California. . . ?

And now, years later: Brother found himself, again, suddenly “up a creek without a paddle” . . . and he, too, hadn’t really thought through the advantages and disadvantages of loaning this instrument to an institution rather than donating it or selling it for cash. And so, now--a week ago--he was actually in a position where, on a couple of occasions, he said, “If the school won't take it, I may have to tell them to just put it out with the trash.”

And then there was this matter of tax deductions: Dad, having waited until his earning years are long over, would gain almost no tax advantage by donating the piano to a charity. And Brother, certainly, would gain no benefit by donating it. (No income = no income tax.)

As it happened, rather than offering to store the piano--only to perpetuate the multiplied "emergency" rescues for this instrument--I was able to find out from our CPA that, if Brother gives me the piano, I can donate it, even the next day, and claim a tax deduction based on the full fair market value as determined by a properly licensed appraiser. Considering the small percentage of the selling price that any piano broker is willing to give a seller, and considering my tax bracket, the deduction I am likely to receive for such a donation will be worth far more than anything Brother could get even by selling it at full retail through a piano dealer.

. . . So that is what we are planning to do: I've been given a piano. We have found a recipient charity that wants to use the piano for its exempt purpose (in this case, the charity is a retirement center that has been looking desperately for a piano), and I will be making the donation to the charity. We have already committed to giving 50% of our AGI for this year, so the tax deduction will have to roll over to future years. But I expect I will be able, then, to give Brother the value of that tax deduction--cash that will do him and his wife a whole lot more good than that grand piano itself would have ever done them!

*****

I tell this story partially to inspire you to think through: Am I (i.e., are you) or are my parents (i.e., your parents) hanging on to any possessions that could actually become more like albatrosses around the necks of the receiving generation? Any possessions whose transfer could cause heartache or disunity amongst members of the receiving generation?

Do you have some stories you might be able to share of estate “gifts gone bad” . . . or that threatened to go bad except for some fortuitous circumstance or intervention? . . .

Please share your stories! Others of us might learn from them.

Or maybe you can share with the rest of us your concerns about items you can already see are likely to cause problems within your family if you and your parents--or, if you're from the donor generation, if you and your children--don't talk about them.

May the rest of us help you answer some of the questions that bother you?

Thanks for joining the discussion.