Michael Worthington has experience in advising parties entangled in such disputes, resolving differences, and restoring prudent management of jointly-owned property that was the subject of a pitched battle among blood relatives. The disagreements might involve divergent opinions about investments or the terms for sharing the wealth. Before long, the differences over money and property are amplified by legacy family dynamics — jealousies, rivalries and resentments that pose obstacles to prudent planning and consensus decision-making.
In this particular case, the family members were beneficiaries of a trust created by a revered grandfather, who had written specific restrictions in his will that affected who was entitled to the income at various times, and which members of succeeding generations would inherit the assets.
The differences among those who were least favored and those who were more privileged required a balancing act, and good will among relatives that soon evaporated, especially after the passing of the second generation of trustees. The feuding was endangering the preservation of the assets when it became obvious that, as the saying goes in estate matters, “when people die, everything changes.”
Worthington represented the interests of a grandchild of the original grantor, an immigrant entrepreneur who had the thrift and foresight to buy property along the rough, downtown streets of 1930’s Los Angeles. By the 1990’s the value of that same property had ballooned, and the third generation had started to face off over interpretations of grandad’s terms for their legacy. Siblings weren’t on speaking terms and blood relatives were at loggerheads with in-laws. If the problems weren’t settled it would cost every beneficiary a proverbial ton of money.
Worthington’s first step was to open communications among the estranged parties to see whether there was enough daylight for alignment to protect the terms of the generation-skipping trust – one in which income from the trust goes to the second-generation beneficiaries (the children) but the inflated assets ultimately accrued to the third (the grandchildren). The next move was to mediate a breakup of the trust among third generation beneficiaries. Worthington provided careful review and analysis for reorganization of the estate into three separate parts and facilitating the approval process required by the IRS and the California state court. This phase resolved many problems that had been festering along family lines.
In the years following reorganization, there were discrete inquiries made about an adjacent downtown property owner, the Catholic Diocese of Los Angeles, and other major downtown LA players. Worthington amassed a body of knowledge and experience in the dynamics of the area, ranging from development that was planned or in progress, general economic conditions and outlook for the future. During the negotiations phase, family disputes were reduced to a slow simmer.
There followed a condemnation of several downtown parcels to make way for the development of a spanking new police vehicles garage, plus related litigation and mediation with the City to establish proper valuation and a fair price (approximately $8MM), followed by initiation of a 1033 tax-free exchange, a deal where the trust’s downtown property could be sold and reinvested tax-free in comparable commercial property. These moves resulted in a vastly improved annual cash flow for the beneficiaries that offset a stepped-up valuation for property tax purposes based on the purchase price of replacement properties in place of grandad’s land and buildings .
The millions derived from the forced sale were thus protected, as Worthington participated in a due diligence exercise to identify promising commercial properties in a nearby county that met the legal criteria for a tax-free exchange. It was necessary to find suitable replacement income property in the statutory time allowed for the family trustees to close a deal.
A few years later, the family was motivated to undertake a voluntary 1031 exchange of other downtown properties. Under this set of tax laws, the landowner must make a sale and quickly locate the replacement property. The objective is to update ownership status to 21st century circumstances in a proactive rather than reactive manner. The sale proceeds in a 1031 exchange are held in escrow by a third party accommodator and the time for identification of replacement properties is a mere 45 days. Once again, Worthington played a critical role in the successful completion of a $14MM (approx.) exchange of other downtown LA properties for commercial property in more promising surroundings.
As protection for the millions derived from the sale against any sudden property tax reassessment, Worthington participated in a due diligence exercise to identify promising commercial property in a nearby county that met the legal criteria for the tax-free exchange. He and a family member were able to find the suitable income property in time to close a deal for the family trustees.
The preservation of the inherited assets and the clarification of the terms of ownership for the next generation cooled family feuds and enhanced the preservation of family assets.
Capable handling of a case that called for investigation, negotiation, due diligence and mediation skills enabled the family to put the disputes behind them. They wouldn’t have gotten to “yes” without the professional advice, knowledge of the law, and negotiating skills of Michael Worthington.