Dear Michael:

We’re not part of the great oil rush in North Dakota, but my father has a will he hasn’t looked at for the past ten years. He told me not to worry about the future because I’ll be able to buy the land – under the will’s directions – for seventy percent of the market value – and with that I should be happy. I have three other siblings and without having a number to shoot at, it’s hard to know what to do for certain. What’s your opinion?

– Shooting in the Dark


Dear Shooting in the Dark:

I’m afraid your situation is a lot like other people in your generation’s situation. Over eighty percent of the people out there have either no wills or outdated wills.

One of the most common ones I see these days are wills like your father’s will – an option to buy based on a percentage of the value of the property.

This will comes in two versions:

Version one is ‘you are allowed to buy the property of the other children’s share based on seventy percent of the market value’.

Version two is ‘you are allowed to buy the land at seventy percent of it’s market value’.

Under version one, you being one of four siblings, would receive twenty-five percent share of the land and have to pay seventy percent of the other siblings share or seventy-five percent of the value.

Under version two, you have to pay seventy percent of the total value to your siblings and the thirty percent differential is considered to be your inheritance.

As you can see, version one is highly preferable to version two as you only pay seventy percent of the seventy-five percent.

Under version two, Poppa already thought you were getting your inheritance by getting thirty percent off the top and only paying seventy percent of the entire market value.

As bad as all of that sounds – and it is – the worse news is Poppa might think he has version number one, but when the attorney, back in the day, wrote it up used the language from version number two. Either this was a mistake or if land value were only two or three hundred dollars, the differential wasn’t that big of a deal.

In many, many cases when I talk to people and ask them what they have in their will – before I even read what’s in the will – and then read aloud to them what’s actually in the will, about fifty percent or more suddenly get this horrified look on their face and say ‘That’s not what I meant to say. My boy will never survive having to pay seventy percent of the entire market value’.

I could have made them feel better by saying ‘Your boy wouldn’t survive even if you did have the ‘right’ version and he only had to buy land at seventy percent of the seventy-five percent value’ but I usually don’t. Going down the tubes one way versus another way is still going down the tubes.

If you do the math seventy percent of seventy-five percent is still over fifty percent of the ‘market value’ of the land. And who defines market value? An appraiser? Doesn’t say appraised value. County average? It doesn’t say county average – it says market value.

Therefore the only true way to find market value is whatever the market will bear and that’s typically done by an auctioneer. I haven’t heard of any land auctions going ‘lower’ than ‘market value’ for going on close to fifteen years now, and some have been in the one hundred fifty to two hundred percent of ‘market value’ – depending on who shows up at the auction.

Now, this option to purchase – based on the death of your parents – usually occurs when you are in your fifties or sixties – so it kind of comes at a very bad time for you to consider taking on twenty to thirty year mortgages. Sure, interest rates are good now, but somewhere in those years, rates are going to rise.

You need to sit down and have a serious heart to heart with Poppa and tell him to visit someone who can quantify these numbers in black and white for him so he can see the net effect of his will. It’s hard for you to talk to your parents about these things because families just don’t do that well.

That’s why it’s easier to bring someone in who can run the real numbers and show better options than sitting around waiting for your turn down the tubes. And, yes, that is a selfish promo for myself, but whoever it is, get it done now. 

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