Promissory notes: Handling in estate distribution

[Questions in Alabama]

Jurisdiction

Alabama

Handling an estate as administrator and am also one of the three heirs. The estate is basically split 3 ways and we three siblings have no issues with anything in the planned distribution of the remainder of the assets. We are however struggling on how to approach the promissory notes.

Approximately 1/2 the value of the estate resides in 8 promissory notes issued over the past 10 years with a combined value (current principal owed) of 900K. 2 notes have less than 2 years remaining while the remainder have terms remaining of up to 12 years. Interest rates vary between 0% and 8%. All are current with the payments. The notes are secured by a mix of commercial, residential and agricultural properties.

The cleanest way to dispose of them and allow us to close the estate would be to sell them at a significant discount to a third party. This would give us approximately 60% of the current value. A second option would be to assign individual notes to heirs but the current values / interest rates / risk don't really align to that.

The third option is to transfer the promissory notes to an entity representing the 3 siblings. This trust / LLC or something else, would take ownership of the notes. It would collect the payments and at intervals distribute them to the siblings. It would continue until the notes were paid off completely or the mortgagees sell the properties and payoff the notes. Is this even an option?

Open to any suggestions on how to handle this so that the estate doesn't drag out. Thanks

 

[army judge]

Open to any suggestions on how to handle this so that the estate doesn't drag out.

With almost ONE MILLION US DOLLARS at stake, do yourself (and the other heirs) a great service, before you do ANYTHING consult two or three local estate attorneys.

Once you find the right person, retain him/her to assist you in properly administering the estate and it's assets.

Sure, it'll cost a few bucks, but with $1,000,000 at stake, hiring the RIGHT attorney will be well worth the cost.

Whatever you do, don't act upon any FREE advice dispensed by anyone you don't know.

 

[adjusterjack]

Whatever you decide, get a lawyer to iron out the details and create the appropriate documents.

Here's my take on the 3 options:

The cleanest way to dispose of them and allow us to close the estate would be to sell them at a significant discount to a third party. This would give us approximately 60% of the current value.

That's the worst idea, giving up a large chunk of performing notes where the payments are regular and they are secured by property.

A second option would be to assign individual notes to heirs but the current values / interest rates / risk don't really align to that.

Why not? There could be appropriate offsets if you juggle them around. That would be my preference. Each heir gets their own notes that they handle on their own independent of anybody else.

The third option is to transfer the promissory notes to an entity representing the 3 siblings. This trust / LLC or something else, would take ownership of the notes. It would collect the payments and at intervals distribute them to the siblings. It would continue until the notes were paid off completely or the mortgagees sell the properties and payoff the notes. Is this even an option?

Sure. Just like mortgages go from mortgage company to mortgage company, promissory notes can be assigned to an entity like an LLC. Trouble with that option is the costs involved: Setting up the LLC, administering the notes, filing the taxes (an LLC with more than one member is treated as a partnership for tax purposes - gets a bit more complicated).

we three siblings have no issues with anything

Now you don't. How about in the future if you have a falling out, or one dies, or one gets into financial difficulty. Being joined at the hip financially for long periods of time is not a good idea.

 

[Questions in Alabama]

Thanks everyone for their replies.

Army Judge - We do have an attorney engaged that had done a great job with other litigation involving the estate and other assets. However he has had limited experience with promissory notes.

Adjuster Jack - I agree that option 2 would be the best overall option if only from my viewpoint. My two siblings are both retired with major health issues. They also are not really capable of handling rent collections, etc. They are both widowed and panic at anything out of the ordinary.

That is why I was leaning to option 3 but didn't know if it was really an option. That would allow me to handle the paperwork and just make distributions to them. The intent would be to have it designed so that each sibling had 1//3 of the trust / LLC. When they die, that 1/3 would pass to their heir. Each has only 1 child.

As to potential problems down the road, I agree it is always possible. To date, in the handling of our parents estate, we have had no issues. Our children all get along and are actually friends in addition to being cousins. Things could change but hopefully if the entity is drafted correctly we can address future issues.

 

[adjusterjack]

My two siblings are both retired with major health issues. They also are not really capable of handling rent collections, etc. They are both widowed and panic at anything out of the ordinary.

That bit of information changes my vote to Number 1. Cash out, split the money, be done with it.

Though I think you might do better than 60% for seasoned secured notes that are performing. Make some inquiries in that market before you decide.

 

[zddoodah]

The choice made depends on numerous factors not known to us, and the opinions of anonymous strangers who don't have all of the relevant information are pointless.

 

[adjusterjack]

the opinions of anonymous strangers who don't have all of the relevant information are pointless.

If that were really true none of us would be on these forums every day and there wouldn't be any forums.



Loosen up, Z

The disclaimer at the bottom of this page should be enough to warn posters that a paid attorney is the place to get real legal advice.

 

[army judge]

Army Judge - We do have an attorney engaged that had done a great job with other litigation involving the estate and other assets. However he has had limited experience with promissory notes.

I appreciate your civility and courtesy by providing a worthless bum, ME, with your detailed response.

You are free to do whatever you decide to do, mate.

It is your life you're leading, and I wish you all the best in all the things you decide work for you.

 

[zddoodah]

If that were really true none of us would be on these forums every day and there wouldn't be any forums.



Loosen up, Z

There's a difference between informed opinions and ignorant opinions. In this case, we don't have enough information to form informed opinions.

 

[John Hazelwood]

The choice made depends on numerous factors not known to us, and the opinions of anonymous strangers who don't have all of the relevant information are pointless.

 

[justblue]

The choice made depends on numerous factors not known to us, and the opinions of anonymous strangers who don't have all of the relevant information are pointless.

Why are you plagiarizing @zddoodah posting? Why are you using the photo of an attorney in NY?

 

[zddoodah]

Methinks "John" is a spambot.