DEAR BENNY: I have been approached by a friend who plans to buy a six-unit office building. He plans to market all six units for tenants-in-common ownership and wants me to invest in one of the units. Does that make sense?
ANSWER: Tenants in common, or TIC, is an arrangement often used by investors who sold a piece of property and need to invest in a replacement property to accomplish a Starker (1031) exchange.
It may look like a condominium, but it is not. A condo owner owns the unit outright, subject only to a mortgage and the obligation to comply with the condo rules. In a TIC, however, you will own one-sixth of the property, together with the five other owners. You have to read the rules regarding ownership. What happens if one or more owners do not pay the monthly charges? If the manager has to go to court to collect, are you obligated to pay one-sixth of the legal fees? Do you have the right to sell your interest and if so, do any of the other owners have a right of first refusal?
Perhaps the biggest drawback is that you will be “in bed” with strangers. If you decide to consider this investment, please make sure – before you sign any legal documents – to review any agreements or conditions dealing with ownership. Although it is not a condominium, you should consider creating a set of bylaws that every owner will have to follow.
More importantly, why is your friend not considering converting into condo instead?
DEAR BENNY: I was saddened when I learned Prince had died prematurely, but surprised that he did not have a will. My husband and I are in our 40s, and have two young children. We started thinking about our future. What do we need to protect ourselves and our children should things happen to one of us? – Carrie
DEAR CARRIE: I, too, was upset when Prince died. But was not surprised that he did not have a will. Too many people – rich or poor – just don’t bother to spend the time (and a few dollars) creating an estate plan. One never knows when tragedy strikes, and then it’s really too late to start planning.
I cannot provide legal advice in this column, and you both should consult with a local attorney who understands estate planning. But here are the documents that everyone should have at a minimum.
– A last will and testament. How do you want your assets to be distributed? Do one of you have children from a previous marriage and want them to receive something? Do you want to give a gift to someone, or do you want to disinherit someone? All these questions must be answered and spelled out in the will. You should name a personal representative (called executor in many states), and always – always – name an alternative just in case the person you name is unable or unwilling to serve.
– Durable power of attorney. Here, you authorize someone to handle your affairs, such as signing legal document or checks. If, for example, you are the only one that can sign checks, your husband needs this power of attorney to sign if you are not competent. Again, name one person and an alternative.
– Durable power of attorney for health. Some people combine health and financial in the same document, but I prefer a separate power or attorney to deal with your health matters. Often, the person you select for financial matters will not be the same person you want for health related matters.
– Living will, also known as “advance directive.” If you are medically determined to be brain dead, do you want life support to continue or should “the plug be pulled?” I don’t like that concept but it does help people understand what is at stake. According to AARP, a living will spells out what types of medical treatment a person wants at the end of life if he’s unable to speak for himself. It tells medical professionals a person’s wishes regarding specific decisions, such as whether to accept mechanical ventilation.
There are a large number of websites that offer standard forms, but I would first go to Aging with Dignity (www.agingwithdignity.com) for helpful information.
Benny Kass is a practicing attorney in Washington, D.C. and in Maryland. He is not providing specific legal or financial advice to any reader. He wants readers to e-mail him, but cannot guarantee a personal response. He can be reached at: firstname.lastname@example.org.