The Elder Law Forum By Michael Myers Thousand-Dollar-An-Acre Land Goes for $200
Respectful business relationships can ripen into friendships that ultimately inure to the benefit of a surviving party. And, the role of the lawyer can be crucial in assuring that the intent of the parties is carried out.
That was the situation described by a USD Senior Legal Helpline (1-800-747-1895; firstname.lastname@example.org) caller who said her recently-deceased sister prescribed in her will that a family who had rented her farmland for two decades should, upon her death, be provided the option to purchase it at the cost of $200 per acre.
The land has an estimated fair-market value of $1,000 per acre. "They had rented the land for 25 years and had looked after my sister after her husband died. And, besides, my sister was a generous and fair-minded woman," said the caller.
"But with 380 acres involved, her estate will receive $76,000, instead of about $380,000 if the land were sold for what it is worth today. My brother has asked whether the family could insist that the land be sold for what it is worth. Could we?"
"No," I advised. "Assuming your sister had testamentary capacity and was not subjected to undue influence, her wishes must be carried by the personal representatives of her estate."
At my suggestion, the caller contacted the lawyer for the estate, who responded by sending a letter to the caller and her siblings, each of whom will share equally in their sister's estate.
The lawyer said he had contacted the lawyer who drafted and oversaw the execution of the will in 1993. The drafting lawyer said he had a clear and independent recollection of the deceased; that she knew exactly what she was doing and understood the land was then worth substantially more than $200 an acre, and clearly wanted her renters to obtain the land at a bargain rate.
They will also be the beneficiaries of advantageous tax policy. They will obtain the land at the full stepped-up basis of $1,000 per acre.
The IRS will apportion the transaction into two parts: the sale, at $200 per acre, and the balance of $800 per acre as a testamentary gift. The two will be combined to form the new stepped-up basis of $1,000 for capital gains tax purposes.
Business, friendships and love, after all, are not incompatible.