My wife and I decided that our first home purchase should be a beautiful, old (circa 1902) brick home in the city of Cincinnati. We learned very quickly that buying a 106-year-old home had its drawbacks. The first time I had to unclog the shower drain, I realized the hair I pulled out could have belonged to President William Howard Taft, but the antique dealer said it was gross and unlikely.
Now that our family is growing, we have considered moving into a larger, newer home. The question that remains is what to do with our current home? It turns out that there are a few options when buying and selling Real Estate in Ohio.
The first step is obvious. Find people who don’t mind that the main staircase is so creaky that when I go for a late night glass of water, it wakes my whole family and the neighbor’s dog. I’ve considered installing a rope-swing to avoid this problem, but was advised that it may hurt my home’s resale value. Agree to disagree.
The next important step is choosing the type of Real Estate transaction. The options are a Purchase Agreement, a Land Installment Contract, or a Lease with an Option to Purchase.
The Purchase Agreement is the most common way to buy or sell Real Estate. A purchaser makes an offer and the seller either accepts or counter-offers. When I bought my house this way, I made a counter-offer with the stipulation that the seller should fix the creaky stairs. They said no.
While a Land-Installment Contract sounds like something that people fought over in the Wild West, in reality it is a contract that allows the purchaser to pay the seller the purchase price over an extended period of time. The length of time and purchase price are agreed upon by both parties involved. For example, when Michael Jordan put his mansion up for sale, I proposed a Land-Installment Contract where I would pay him $1 per year for 29 million years. I have yet to hear back from MJ.
Lastly, a Lease with an Option to Purchase gives a tenant the option to purchase the Real Estate at any time during the agreement. In the meantime, the rent payments do not count toward the purchase price. In other words, you could pay me $1,000 a month for five years to lease my house, creaky stairs and all. At any time during those five years, if you decide you really love how cold the house gets in winter because of its original windows, you could purchase my house for $150,000.
With all of its flaws, our little house really is beautiful and I am sure someone will find it perfect as we once did. In the meantime, I am going to see if Michael Jordan just wants a straight-up trade.
If someone walked up to me today and handed me a check for $300,000 I would do many things with that money, after of course I finished the lengthy and awkwardly affectionate hug I would give that person.
After paying off some high-interest debt I would look to the future, which would include starting an account for my one-year-old daughter's future college plans. My wife mentioned starting a large wedding fund, but I told her it is unlikely that my daughter will ever get married because I’m not going to let her talk to any boys after she turns 5.
With all of the future planning that would take place in this scenario, I had to consider another important, though somber, scenario. What if my wife and I are not around anymore? What happens to these plans? This is where Elliott's guidance was helpful. I learned that even if I had life insurance to cover the difference, what happens to this money is a sobering reality.
The reality is that at the age of 18 my daughter would receive all of these assets, including the aforementioned check for $300,000.
If I received a check for $300,000 at the age of 18, I would currently own the original animatronic T-Rex from the movie Jurassic Park. While I still think this would be a really cool conversation piece in our living room, I now believe paying for education, healthcare, and other life essentials is much more important.
The alternative to trusting a teenager with hundreds of thousands of dollars is to create a Revocable Living Trust. This Trust will only distribute assets for the essentials in life, including education, healthcare and support, until the child reaches a more mature age.
Another benefit of this Trust is the option to designate a guardian for a child in a Will, and a separate trustee to handle the money. This way if you have someone who would be great at raising kids but might try to buy the original animatronic Jurassic Park T-rex with the money, it is possible to split up these duties.
The sad reality is that nobody has given me a check for $300,000 yet. The good news is that with my current assets, life insurance and Revocable Living Trust, I know my daughter will be taken care of in a responsible and loving way no matter what the future has in store for me.
If you have any questions on the information contained in this blog, see the estate planning website of Cincinnati attorney, Elliott Stapleton, with CMRK Law, 123 Boggs Lane, Cincinnati, Ohio 45246, or contact him at (513) 334-0099.
Elliott Stapleton Attorney with CMRS Law