Pay off house with windfall?

[gusmahler]

My mother was really sick a few months ago. Sick enough that she wanted to get her final affairs in order. She wants to split everything she owns three ways for her three kids. Problem is, she doesn't trust my brother with money. So she asked me to take his share and put it all into his house (it might not be enough to pay off the entire house, but it will pay off over 50% of the house). Those particular wishes of hers are not in writing.

I haven't told my brother yet.

So I have the ethical dilemma of whether or not I tell my brother or if I should do what my mother asks. (It doesn't seem fair that my sister and I may have a substantial amount of money to invest/pay off debts, but my brother only gets to increase the equity in his house.)

But I also have a financial dilemma. Regardless of the moral issues, I'm not sure if paying down his mortgage is in his best interest from a financial standpoint either.

Comments? Suggestions? If it helps, my brother is about 40, and probably makes between $40-50k/year. His house is probably worth over $250k, I think he bought it for $170k or so, though I don't know how much he put down. His 1/3rd share would be over $100k (I don't know exactly how much over $100k). He has credit card debt, but I don't know how much.

(This question is mainly hypothetical: my mother fully recovered and is in good health now.)

[gull]

Well, from a rational financial perspective, paying off the credit card debt seems more logical to me.

[Sniper]

You should do as your mother asks. You brother could always take out a home equity loan to clear the credit card debt after you pay down his mortgage.

So bottom line, as long as he gets the money in some way, he'll be fine.

However, now that your mother has recovered, it might be a good time to suggest to her that she document her wishes.

[squiffy]

Thanks for presenting such an interesting situation.

It's important that you talk to your mom and try to convince her to speak with an attorney who specializes in wills and trusts.

It's extremely unwise for her to make her wishes known orally. This can create a huge amount of ill will in the future if your brother doesn't believe your version of events. If her wishes are made known in writing while she is of sound mind and body, with witnesses, your brother will be less likely to make you the focus of his anger or resentment, if any.

It's not even clear, from a legal standpoint, whether your mom can attach such strings to a cash bequest. She would effectively be saying to your brother, I won't give you this money unless you promise to use it to pay off your mortgage.

And, as you say, he can probably just refinance to get the cash anyway, which would effectively hurt him.

Even if your mom can force your brother to accept this condition, it must be done in writing and legally, by means of an appropriate trust or legal instrument. And an experienced lawyer can tell your mom whether it is even legal for her to structure the deal in that way.

If you were to carry out your mom's wishes based on an oral agreement, you could get into legal trouble. There is no evidence that your mom legally appointed you the executor of your estate. And your brother might be able to mount a legal challenge against your efforts to condition his payment.

If your mother dies without a will, then her property may have to go through probate, in which case the state law may require that the home be sold and the proceeds divided equally among the three of you.

Actually, if you find out what the default rule is in your state, then you also have the option of saying nothing to your mother and letting probate take care of distributing her assets.

Unless she makes her special wishes known in writing, the default rules will probably apply, and your brother will get his share with no strings attached.

If it goes through probate you probably will not have the legal right to assume control of your mother's estate and dole out your brother's portion with strings attached. It would probably be ILLEGAL for you to honor your mother's orally expressed wishes.

[maxtower]

Even if you pay off his house, he can still get the money through a home equity loan and blow it on whatever he wants.

[Mr. Now]

Since he owns the home, he can always go the home equity-line route and blow it. One way to protect someone from themselves is to put their share in a trust with a trustee who metes it out according to the wishes of the benefactor.

You might want to tell your mom about this and maybe arrange to see some trust lawyers to discuss this. If he has kids, she can set them up instead of/in addition to her son.

[gusmahler]

To clear up confusion, the only part that is not in writing is the part where my brother's share would be used to pay off the house.

Otherwise, everything else was set up in a will and a trust, with me as the executor of my mom's estate and the trustee of the trust upon the death of my mom.

But now that she's recovered, I guess I should just have my mom talk to my brother. She's always had confrontation issues, and this is just another example of it.

My plan (previous to making this thread) had been to tell my brother of our mother's wishes, but to give him the money without any strings. He'd be free to listen to her or not.

[squiffy]

Well, the part about your brother having to use the money to pay down his mortgage is the key to your OP.

If your mother's wish in that regard was expressed orally, then the bottom line is that it would probably be ILLEGAL for you as executor to even attempt to enforce that oral wish.

As an executor, your legal obligation is to comply with the written wishes of your mom as expressed in her will.

If it's in writing, signed by your mom, with witnesses, that's legally enforceable.

If she told you something orally, you probably cannot LEGALLY try to comply with it.

I think your instincts were correct. But if you are going to be the executor of the will, you also need to be aware of your legal function and legal obligations.

Actually, it might be a very BAD idea to have your mom talk to your brother. If it's not in writing, her oral wishes are not enforceable. And the 1/3 share just goes to your brother with no strings attached.

It's probably best that way any way.

[squiffy]

For example, let's say your mom one day told you ORALLY that she wanted your brother's 1/3 share of the proceeds from the house to go to her cat.

Do you think that as an executor, you could or should legally enforce her ORAL instruction to you?

Remember, in many legal situations involving the disposition of money or property, ORAL instructions often are not worth the paper they are NOT written on.

ORAL instructions often = garbage, or no instruction at all

Otherwise it would be too easy for everyone to take the stand and testify falsely as to what your mother said should be done with the money.

[john kane]

i would get your mum to speak to a financial advisor (with you present as well) to explain to her what would be the best course of action given her wishes of wanting you brother not to be able to use the money unwisely.

The most important factor here is you mum gets what her final wish is, and if a financial advisor is needed to ensure that is what happens, then so be it.