[WSBAPT] what an heir is entitled to

Tue Oct 20 15:49:28 PDT 2015

Jenna--I completely agree with Tara. I did have one case similar to this about 8-10 years ago, in Spokane County as it happens (more similar in practice to Whitman than King County, at least), and the court ordered a forensic accounting and appointed the accountant firm we nominated to do the digging. After six months of horsing around, the PR settled rather than take their shoddy recordkeeping and clear instances of self-dealing into the public record. Our client, the black-sheep heir estranged from the family members (including PR) who felt "entitled" to exclude her, got everything she was legally entitled to, plus attorney fees, in the settlement.

The co-PRs are behind the eight-ball on this; their fiduciary duties put them in a very bad predicament. Give 'em heck and don't back down; there is major leverage for Beth in your scenario.

Sincerely,

Eric

Eric C. Nelsen
SAYRE LAW OFFICES, PLLC
1320 University St
Seattle WA  98101-2837
phone 206-625-0092
fax 206-625-9040

From: wsbapt-bounces at lists.wsbarppt.com [mailto:wsbapt-bounces at lists.wsbarppt.com] On Behalf Of Jenna Brozik
Sent: Tuesday, October 20, 2015 3:14 PM
To: WSBA Probate & Trust Listserv
Subject: Re: [WSBAPT] what an heir is entitled to

Thanks for all your input.  There is an LLC operating agreement but there is no mention of what happens when a member dies.  The operating agreement gives the company authority to "do all things necessary to accomplish operating its business."

We are in the process of requesting information from the PRs including bank accounts, inventory, etc. and they have been providing them with huge gaps, missing statements, etc.

Trying to settle this without all the pieces (information) has been frustrating.  The PRs (son and Daughter A) have nonintervention powers.

Jenna Brozik
Attorney at Law
Prinz & Brozik PLLC
445 S Grand Ave
Pullman, WA 99163
(509)338-0908 / (509) 338-3527 (fax)
jennaprinzlaw at gmail.com<mailto:jennaprinzlaw at gmail.com>

On Tue, Oct 20, 2015 at 2:51 PM, Tara <pugetsoundlaw at gmail.com<mailto:pugetsoundlaw at gmail.com>> wrote:
Aside from the fiduciary mismanagement, co-mingling of funds, failure to collect rent, and shoddy accounting that has probably occurred – all issues that appear significant - you may have a situation that could be resolved in a pretty straight forward manner.  If Son and Daughter A want to continue to operate under the status quo without the granddaughter as a co-owner/LLC member, then you could complete a TEDRA agreement and have them buy out her 1/3 interest in the estate.  Get a current valuation on the LLC and its properties, the house, and any other estate assets, figure the net owed to the estate for LLC expenses paid and income owed, and the deficit due on the residence’s rental value.  Valuation and accounting will certainly be the key issues and will be no mean feat.

The valuation of the estate as of the date of death six years ago should not affect distribution of Beth’s 1/3 interest in the net estate assets.  Are Daughter A and Son proposing that they only have to distribute for her inheritance now based on 1/3 of the date of death value of the Estate?  Have they made interim distributions?  Are they proposing a non pro rata distribution to Beth?  Are there other assets of the Estate to consider?  With the intestate estate you described, Beth steps into her mother’s shoes as heir by right of representation and is entitled to her equal 1/3 share of the net estate, including the income and appreciation during administration.  Beth should be distributed a 1/3 interest in the residence and an equal 1/3 of whatever her grandmother’s interest was in LLC, a fraction-of-a-fraction share (assuming they were three equal LLC members, then she would get 1/3 of 1/3).

The net estate is certainly subject to the obligations of the decedent and the costs of administration, which includes its proper share of the LLC operations as a member.  During administration, the Estate stands in the shoes of the deceased LLC member and its proportional share of profits, losses, and capital contributions as member, according to the terms of the LLC agreement and state law.  However, the Estate certainly doesn’t become the unregulated cookie jar for supporting the continued operation of the LLC for the benefit of the other members.  It may be worthwhile to dig into the income, expenses, tax reporting, etc to ensure the Estate recoups the full value given to and due from the LLC over time.

It sounds like Daughter A and Son have fairly dirty hands themselves, whether they are just innocently ignorant of their duties or intentionally mismanaged the Estate and LLC.  The fact that they have mismanaged should be significant leverage itself.  Who was appointed as PR?  Did they get nonintervention powers?  What parts of administration have they actually completed?  What authority did they have to continue to operate the business?  There are options for actions for breach of fiduciary duty, for an accounting, to restrict nonintervention powers, to remove the PR, etc.  Some options might put her in the driver’s seat for the Estate’s interests, if she wants to take that on.

Even if everyone is willing, getting a buy-out done is a different animal.  There are numerous factors that could impact any negotiation.  Do they have liquidity to complete a buy out?  Or can they leverage the property to generate sufficient cash?  If assets have actually been distributed to others and Beth was left out, then she may have to look at recovering assets.  If they have made distributions that include her on title, but not in practice, then she may ultimately have to force a partition of the residence or an action for mismanagement of the LLC.

How much are they going to fight about it?  How much is Beth willing to fight about it?  Beth’s desire to “get out” rather than continue as a 1/3 owner of the house and LLC will certainly impact any comprise and the course of action taken to get there.

There aren’t situations much messier than family members co-owning real estate together, even if setup an LLC.

Tara M. Roberts
Puget Sound Law pllc
roberts at pugetsoundlaw.com<mailto:roberts at pugetsoundlaw.com>

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From: wsbapt-bounces at lists.wsbarppt.com<mailto:wsbapt-bounces at lists.wsbarppt.com> [mailto:wsbapt-bounces at lists.wsbarppt.com<mailto:wsbapt-bounces at lists.wsbarppt.com>] On Behalf Of Jenna Brozik
Sent: Tuesday, October 20, 2015 12:39 PM
To: WSBA Probate & Trust Listserv <wsbapt at lists.wsbarppt.com<mailto:wsbapt at lists.wsbarppt.com>>
Subject: [WSBAPT] what an heir is entitled to

Here is the scenario:

Grandma, daughter A, and son, have LLC in which they own several properties and collect rental income.  Grandma has another daughter B that has passed away.

Grandma owns her own house, separate from the LLC.

Grandma dies, no will.  Son and daughter continue to run LLC on their own.  Probate is opened a couple months after death of grandma.  Probate has been open for six years and has not closed.

Son and daughter A pay for significant repairs and improvements for the properties out of the LLC profits over the past six years.

Daughter B has a daughter (let's say her name is Beth) who is entitled to her deceased mother's share.  She inherits a 1/3 of the estate, as well as the son inherits a 1/3 and the daughter A inherits a 1/3.

Son and daughter rent out grandma's house and do not pay off mortgage of the house.  Son and daughter pay the mortgage from grandma's house from LLC account and deposit rent into LLC account, not estate account.  Son and daughter rent out grandma's house to a family member way below market value.

If Beth inherits her share of the properties in the LLC at the value from the date of death six years ago, she gets cheated out of the improvements and the increase of value in those properties.

Son and daughter A want to continue to run LLC and own the properties in the LLC.  Son and daughter A want to keep grandma's house and continue to rent to the family member. Beth just wants out and her share.

Does any one have suggestions as to how Beth can inherit her fair share?
Thanks in advance,
Jenna Brozik
Attorney at Law
Prinz & Brozik PLLC
445 S Grand Ave
Pullman, WA 99163
(509)338-0908<tel:%28509%29338-0908> / (509) 338-3527<tel:%28509%29%20338-3527> (fax)
jennaprinzlaw at gmail.com<mailto:jennaprinzlaw at gmail.com>

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