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Today we play TL Helps Me With A Dilemma.
There's a saying in danish (freely translated): "You don't know your family until you have inherited". It's not meant as "You don't know your parents until they die" but more like "You don't know your siblings until your parents die".
An old man dies. His wife, an old lady, has a stroke and is left in a state of severe dementia. Her two children, a son and a daughter, become her legal guardian. They make all decisions for her, financial and otherwise.
Since the old lady needs full time attention in a home (free of charge in Denmark!), she cannot really use her money for anything anymore. Knowing the old lady, she would not have used them herself anyway. The tax rules in Denmark say that you have to pay taxes of inheritance. However, anyone can give a certain limited amount of money to anyone else once a year tax free. You can give money tax free like this to as many people as you like every year. The son and the daughter get an idea.
While the old lady is still alive, every year they want to give a tax free amount of money to her family members. Since they're her legal guardians they can legally make this decision. It is like an early inheritance but you don't have to pay taxes of it. So far so good, however...
The son has three children. The daughter has four children. The son want the money to be split even between the two families, when X amount of money goes to one family, the same amount should go to the other. The daughter thinks the money should be split even over the seven grandchildren. Each grandchild gets an even amount of money. That would obviously leave one family with a combined 3/7th of the money and the other with a combined 4/7th of the money. Both families appear to be doing alright and no one desperately needs the money.
So basically, it's like this:
The son and the daughter agree on the son's plan: Each family gets 50% of the money
The son and the daughter agree on the daughter's plan: Each grandchild gets 1/7th of the money.
The son and the daughter cannot reach an agreement: Each family gets 25% of the money while 50% goes to the state as taxes.
The son and the daugher agree on something else entirely: ???
Anyway, I don't know what the right decision is and I thought maybe TL could help me out.
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GrandInquisitor
New York City13113 Posts
The English common law provides "default" rules for people that die without a will. Obviously this isn't binding on the son and daughter, but it's a helpful guidepost.
Generally (and this has been changed by some jurisdictions), the rule is:
* If all the living descendants are at the same "level" (in your example, the son+daughter, or alternatively all seven of their children if the son+daughter have died), then they all get the same share. So it would be split 50/50, or 1/7 to each grandchild if both the son and the daughter have already died.
* If the living descendants are not at the same "level" (let's say, in your example, the son+4 children of the daughter), then it's divided evenly among the first generation of descendants. So it would be split 50% to the son, and then the four children of the daughter divide her 50% share (12.5% each).
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I would suggest a new approach.
Neither the 50% approach or the 1/7th approach is ideal. It is a lot more obvious if we tune the numbers a bit more extreme. Let's just I have a sister and my sister has 3 kids while I have none. If we take the 50% approach, then my sister's family is a little bit better off, while I get super rich. Even though it's a fair 50% split between the immediate offspring, the problem is that the each grandchild has played an important role within the life of the grandparents, and the grandparents would definitely want to reward each of them for being family. On the other hand, if we take the 1/7th approach, then I get nothing at all because I have no children, which is also problematic.
The approach I would take is more of a hybrid approach. First look at the minimum number of years that the old lady will survive so you know how many money transfers are required to deplete all her savings. Obviously if there are more transfers required than family members existing, then you want to split it 9 ways between grandchildren and parents. But let's say that isn't the case. First you want to transfer the maximum amount allowed each year to each parent. After that, split it 7 ways evenly between grandchildren. For example, if there is $27,000 and there's only one year life expectancy and the maximum untaxed transfer is $10,000, then each parent gets $10,000 and each grandchild gets $1000.
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Canada7170 Posts
Optimally you would give each family member a share based on their importance to the grandmother.
Since that's subject to bias and nobody has time for that, 50% to each family sounds right.
The way I see it, the grandmother willingly had two children which for argument's sake we will assume are equally important to her. The decision to have grandchildren was solely that of the parents, and not the grandmother.
It's not my fault my sister decided to have more kids than me. If my parents would split their inheritance based on kids, I'd have a shitton of kids and screw her over.
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On April 15 2014 08:20 GrandInquisitor wrote:
The English common law provides "default" rules for people that die without a will. Obviously this isn't binding on the son and daughter, but it's a helpful guidepost.
Generally (and this has been changed by some jurisdictions), the rule is:
* If all the living descendants are at the same "level" (in your example, the son+daughter, or alternatively all seven of their children if the son+daughter have died), then they all get the same share. So it would be split 50/50, or 1/7 to each grandchild if both the son and the daughter have already died.
* If the living descendants are not at the same "level" (let's say, in your example, the son+4 children of the daughter), then it's divided evenly among the first generation of descendants. So it would be split 50% to the son, and then the four children of the daughter divide her 50% share (12.5% each).
We have default laws in Denmark too. If no agreement can be reached then the son and the daugher will inherit an equal share each, that's 50%. However, they will have to pay taxes of that money so they would only get 25% of the total amount each. Grandchildren do not inherit anything by default.
I guess the idea is, if the son and the daughter inherit they get 50% each. If the son and the daughter were both dead, the grandchildren would get 1/7th each. The son and the daughter are not dead, but they don't actually want to inherit anyway, they'd rather their own children, the grandchildren, inherit.
On April 15 2014 08:27 Chairman Ray wrote:
I would suggest a new approach.
Neither the 50% approach or the 1/7th approach is ideal. It is a lot more obvious if we tune the numbers a bit more extreme. Let's just I have a sister and my sister has 3 kids while I have none. If we take the 50% approach, then my sister's family is a little bit better off, while I get super rich. Even though it's a fair 50% split between the immediate offspring, the problem is that the each grandchild has played an important role within the life of the grandparents, and the grandparents would definitely want to reward each of them for being family. On the other hand, if we take the 1/7th approach, then I get nothing at all because I have no children, which is also problematic.
The approach I would take is more of a hybrid approach. First look at the minimum number of years that the old lady will survive so you know how many money transfers are required to deplete all her savings. Obviously if there are more transfers required than family members existing, then you want to split it 9 ways between grandchildren and parents. But let's say that isn't the case. First you want to transfer the maximum amount allowed each year to each parent. After that, split it 7 ways evenly between grandchildren. For example, if there is $27,000 and there's only one year life expectancy and the maximum untaxed transfer is $10,000, then each parent gets $10,000 and each grandchild gets $1000.
The old lady is getting very old and with severe dementia. However, she seems to actually be in good spirits and in good health. She has beaten cancer twice so she's obviously pretty resilient. No one knows when she will die but probably not in a at least couple of years, could easily be more. It would take at least 5 years to get all of her money, maybe even 10 (it's a little hard to say exactly because she also owns two houses that would have to be sold so the exact amount of money is not known).
Your approach seems to be "get as much money tax free as possible" but it's very hard to say if one plan will get more tax free money than the other. Also, neither the son nor the daughter has "screwing the system over as much as possible" as a priority, they just each have different ideas of what's fair.
On April 15 2014 08:45 mikeymoo wrote:
Optimally you would give each family member a share based on their importance to the grandmother.
Since that's subject to bias and nobody has time for that, 50% to each family sounds right.
The way I see it, the grandmother willingly had two children which for argument's sake we will assume are equally important to her. The decision to have grandchildren was solely that of the parents, and not the grandmother.
It's not my fault my sister decided to have more kids than me. If my parents would split their inheritance based on kids, I'd have a shitton of kids and screw her over.
I'm not going to claim to be an expert on parenthood but I'm pretty sure that no one will ever have a shitton of kids solely for the vague prospect of potentially screwing their siblings over. That's the dumbest thing I have ever seen from a banhammer, you guys are usually pretty smart.
You would also not be screwing your siblings over, they would get nothing anyway. You would only be screwing your nieces and nephews over. If you consider your nieces and nephews getting the same amount of money as your own children "screwing them over". Would you feel screwed over if you had two siblings, and four cousins and then all of you inherited the same amount of money from your grandparents? Would you think it was fair if you had three siblings and three cousins and then your cousins inherited more money from your grandparents than you did?
It should also be noted that the old lady (and her husband) loved all of their grandchildren very much. They babysat all of them when they were young. She and her husband (before he died) also made savings accounts for them (another way of getting around the tax problem) and those savings accounts all contained the same amount of money. There were no savings accounts for her own children at the time of her stroke (ostensibly because they were doing alright). When the grandparents hosted christmas dinners every grandchild would get the same amount of food on his or her plate.
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Surely the 1/7 approach is the best option? This isn't about families so much as it is the amount of money the children are getting. How is it fair to the daughter's children to say they get less money because they have less cousins?
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Canada7170 Posts
On April 15 2014 09:22 prplhz wrote:
I'm not going to claim to be an expert on parenthood but I'm pretty sure that no one will ever have a shitton of kids solely for the vague prospect of potentially screwing their siblings over. That's the dumbest thing I have ever seen from a banhammer, you guys are usually pretty smart.
Sorry, I typed that last bit as more of a tongue-in-cheek hypothetical. I just wanted to show an extreme and display how unfair it would be to the family with less children to distribute based on number of grandchildren. I think the default law is there for a purpose of treating families as a unit as equal, and if the purpose of early distribution is to take advantage of tax benefits, it should be done in accordance with what the default is. I've experienced firsthand that deviating from the default can cause bad blood between family, and your Danish saying is certainly appropriate.
Sorry again for making light of your situation. It was probably in bad taste.
PS: Don't ever use the banhammer as a measure of intelligence, but thank you for giving me the honor of dumbest thing ever seen 
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The woman's just being greedy imo. It should be equally distributed amongst the two offspring. Having more spawn doesn't entitle you to more inheritance.
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On April 15 2014 09:22 prplhz wrote:Show nested quote +On April 15 2014 08:27 Chairman Ray wrote:
I would suggest a new approach.
Neither the 50% approach or the 1/7th approach is ideal. It is a lot more obvious if we tune the numbers a bit more extreme. Let's just I have a sister and my sister has 3 kids while I have none. If we take the 50% approach, then my sister's family is a little bit better off, while I get super rich. Even though it's a fair 50% split between the immediate offspring, the problem is that the each grandchild has played an important role within the life of the grandparents, and the grandparents would definitely want to reward each of them for being family. On the other hand, if we take the 1/7th approach, then I get nothing at all because I have no children, which is also problematic.
The approach I would take is more of a hybrid approach. First look at the minimum number of years that the old lady will survive so you know how many money transfers are required to deplete all her savings. Obviously if there are more transfers required than family members existing, then you want to split it 9 ways between grandchildren and parents. But let's say that isn't the case. First you want to transfer the maximum amount allowed each year to each parent. After that, split it 7 ways evenly between grandchildren. For example, if there is $27,000 and there's only one year life expectancy and the maximum untaxed transfer is $10,000, then each parent gets $10,000 and each grandchild gets $1000. The old lady is getting very old and with severe dementia. However, she seems to actually be in good spirits and in good health. She has beaten cancer twice so she's obviously pretty resilient. No one knows when she will die but probably not in a at least couple of years, could easily be more. It would take at least 5 years to get all of her money, maybe even 10 (it's a little hard to say exactly because she also owns two houses that would have to be sold so the exact amount of money is not known). Your approach seems to be "get as much money tax free as possible" but it's very hard to say if one plan will get more tax free money than the other. Also, neither the son nor the daughter has "screwing the system over as much as possible" as a priority, they just each have different ideas of what's fair.
In this case I would say just give the maximum tax free transfer to each of the 9 family members each year. If she's still well and has a few years left, then you don't have to decide inheritance now. This will maximize your gains, but more importantly cut out a huge source of family stress while the grandmother is still well.
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On April 15 2014 09:45 mikeymoo wrote:Show nested quote +On April 15 2014 09:22 prplhz wrote:
I'm not going to claim to be an expert on parenthood but I'm pretty sure that no one will ever have a shitton of kids solely for the vague prospect of potentially screwing their siblings over. That's the dumbest thing I have ever seen from a banhammer, you guys are usually pretty smart.
Sorry, I typed that last bit as more of a tongue-in-cheek hypothetical. I just wanted to show an extreme and display how unfair it would be to the family with less children to distribute based on number of grandchildren. I think the default law is there for a purpose of treating families as a unit as equal, and if the purpose of early distribution is to take advantage of tax benefits, it should be done in accordance with what the default is. I've experienced firsthand that deviating from the default can cause bad blood between family, and your Danish saying is certainly appropriate. Sorry again for making light of your situation. It was probably in bad taste. PS: Don't ever use the banhammer as a measure of intelligence, but thank you for giving me the honor of dumbest thing ever seen
Oh okay, didn't catch that. Well, banhammers are usually some of the best posters, I'm sure you'll agree with me on that.
The problem is that the default is that they just wait it out and pay 50% taxes on inheritance. Doing the tax free gift trick doesn't work very well if they only transfer money to the son and the daughter because then they will probably only transfer a fraction of the total inheritance before the old lady's gone. Transfering to the grandchildren however poses another problem in that some grandchildren will get more than others.
On April 15 2014 09:28 myxoma_strain wrote:
Surely the 1/7 approach is the best option? This isn't about families so much as it is the amount of money the children are getting. How is it fair to the daughter's children to say they get less money because they have less cousins?
But in the son's mind, he will get 50%, his sister will get 50%, and then they'll pass them on to their own children. They just skip the middle step because of some tax rules.
On April 15 2014 10:34 Scarecrow wrote:
The woman's just being greedy imo. It should be equally distributed amongst the two offspring. Having more spawn doesn't entitle you to more inheritance.
The woman isn't being greedy. No one is being greedy. No one actually needs this money, people are doing well on their own. The problem comes from no one wanting to get "cheated" out of money they think is rightfully theirs, whether they need it or not.
Both the son and the daughter will not get any of the money in either plan. It's only the grandchildren who will get money. If you had three grandchildren by two children, would you have one grandchild inherit twice as much as the other two? Is it fair that you get less money because you have fewer cousins? Do you think that the old lady's savings accounts for her grandchildren should also reflect this?
On April 15 2014 10:41 Chairman Ray wrote:Show nested quote +On April 15 2014 09:22 prplhz wrote:On April 15 2014 08:27 Chairman Ray wrote:
I would suggest a new approach.
Neither the 50% approach or the 1/7th approach is ideal. It is a lot more obvious if we tune the numbers a bit more extreme. Let's just I have a sister and my sister has 3 kids while I have none. If we take the 50% approach, then my sister's family is a little bit better off, while I get super rich. Even though it's a fair 50% split between the immediate offspring, the problem is that the each grandchild has played an important role within the life of the grandparents, and the grandparents would definitely want to reward each of them for being family. On the other hand, if we take the 1/7th approach, then I get nothing at all because I have no children, which is also problematic.
The approach I would take is more of a hybrid approach. First look at the minimum number of years that the old lady will survive so you know how many money transfers are required to deplete all her savings. Obviously if there are more transfers required than family members existing, then you want to split it 9 ways between grandchildren and parents. But let's say that isn't the case. First you want to transfer the maximum amount allowed each year to each parent. After that, split it 7 ways evenly between grandchildren. For example, if there is $27,000 and there's only one year life expectancy and the maximum untaxed transfer is $10,000, then each parent gets $10,000 and each grandchild gets $1000. The old lady is getting very old and with severe dementia. However, she seems to actually be in good spirits and in good health. She has beaten cancer twice so she's obviously pretty resilient. No one knows when she will die but probably not in a at least couple of years, could easily be more. It would take at least 5 years to get all of her money, maybe even 10 (it's a little hard to say exactly because she also owns two houses that would have to be sold so the exact amount of money is not known). Your approach seems to be "get as much money tax free as possible" but it's very hard to say if one plan will get more tax free money than the other. Also, neither the son nor the daughter has "screwing the system over as much as possible" as a priority, they just each have different ideas of what's fair. In this case I would say just give the maximum tax free transfer to each of the 9 family members each year. If she's still well and has a few years left, then you don't have to decide inheritance now. This will maximize your gains, but more importantly cut out a huge source of family stress while the grandmother is still well.
I like this solution simply because it's a compromise between 3/7 4/7 and 50 50. 4/9 5/9 is very close to the alternatives. If the son and the daughter can't agree on anything, they should be able to agree that everybody gets an even share. Hopefully.
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Canada7170 Posts
By "default" I meant emulate the default payment structure but take advantage of the tax break, so still 50/50. 4/9 and 5/9 sounds like a decent compromise but for all we know it could be millions.
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Well it depends how rich is the old lady. The amount you can transfer to each person each year tax free is capped. So what you want is to transfer as much as possible before she dies. If you transfer to each child and each grandchildren you can transfer to 9 persons/year.
My point is, I'm still thinking that 50/50 is the way to share, however depending on the tax rate and how much there is to transfer in total, maxing out the yearly transfer is more profitable than getting an exact 50% with more tax.
Also, if you use 9 people you could do a 4/9 5/9 split which seems acceptable. But once again, maximize the tax free transfers, better give a little bit more money to your sister than to the state right?
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5/11 6/11 split.
Son + Wife + 3 Kids = 5
Daughter + Husband + 4 Kids = 6
This is only to appease the Daughter. 50/50 is fairer though.
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If the son agrees the money goes to the grandchildren, the 3/7-4/7 split is more fair.
But i don't think fairness is a good guideline to such things. The division would be 50/50 if nothing was done, anyway. So the daughter thinks it's fair for a deal to give 72% extra to one side and 128% extra to the other. That also doesnt sound fair.
I'm in favor of 50/50, just because it would've been that way if nothing was done. It seems to me the most natural way to go about it: it's tax evasion, disregard the rest.
edit: of course, this is assuming there are no other tax restrictions. As endy says, better to your sister than to the state, if that becomes an issue.
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Since most people seem to favor the 50/50 approach, do you guys think that the old lady should also have done this in the savings account for her grandchildren? Made sure that some grandchildren got more than others based on how many cousins they happened to have?
It also seems like some of you think that the son and the daughter will get some of the money in either of their plans, they will not. It will all go to the grandchildren. It is a considerable amount of money but nothing that will change living standards. Would you agree that for every 3 dollars each of your kids get, your nieces and nephews get 4 dollars each? Do you think that's what the old lady would do if she were still at her senses?
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On April 15 2014 23:44 prplhz wrote:
Since most people seem to favor the 50/50 approach, do you guys think that the old lady should also have done this in the savings account for her grandchildren? Made sure that some grandchildren got more than others based on how many cousins they happened to have?
It also seems like some of you think that the son and the daughter will get some of the money in either of their plans, they will not. It will all go to the grandchildren. It is a considerable amount of money but nothing that will change living standards. Would you agree that for every 3 dollars each of your kids get, your nieces and nephews get 4 dollars each? Do you think that's what the old lady would do if she were still at her senses? What the old lady would've done is irrelevant now. Seems harsh, but i'm just pragmatic, as there's no way of finding out. I would consider using that statement as argument for one of these alternatives emotional blackmail; the one who has to defend will never have a defence, regardless of the person mentioning it.
The initial amount that is rightfully inherited is divided 50/50. Due to this procedure (of transferring money), you can double the amount. But if you're changing the ratio, you'd have to make a very strong point as to why you think so. Things not being fair is imo never a point. There are loads of ways you can look at the situation and conclude either fairness or unfairness. For me, additional tax restrictions, for example, can be a point as you'd ideally want to maximize the amount of money not lost in tax.
Lastly, I think fighting over the money of a (still living) relative is disgusting. If you aren't able to decide this in a friendly manner, you'd better leave it, and do some nice things with the money you get (after tax). What would the old lady think if they saw her son and daughter fighting over her money?
edit: some minor changes
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EPT
