Need advice about holding the mortgages for my children.

[Miss Prim]

Hi all.  I have not posted in a while as I have already made my "stache and am happily enjoying my retirement for 10 years now.  Hubby is 75, I am 71.  We sold our house to my son last May and moved into our 2nd home on a lake.  He gave us a substantial down payment (30%) as he sold his house to buy ours.  He is paying us back every month as we had a lawyer draw up a land contract.

 I told my daughter I would finance a mortgage for her too if she needs it.  My daughter and her husband have decided to look for a different house so we told them we would go up to $350,000 since that is what we set up with our son.  The problem is my son's $350,000 cost us nothing as our house was paid off.  We have more than enough funds that are not IRA's to provide them the money, but as with mortgages, the early years are mostly interest.  We routinely pull out 4% of our 'stache every year and it has only grown every year well beyond that. 

My question is I am thinking about gifting the $350,000 to my daughter as part of her lifetime inheritance.  And at the same time, I will forgive the loan to my son.  Our 'stache is all going to them anyway after we pass.  It would get the money out of our estate as we would be self funding any nursing home costs.  The other option would be to just keep holding the 2 mortages and pay taxes on the interest and adjust our quarterly distributions from our 'stache. 

Any thoughts on this would be appreciated!  Miss Prim

Edited to say that both my children and their spouses make good money and are very responsible people.  My daughter is 43 and my son is 39. 

[GilesMM]

Giving your inheritance away to the kids when they most need it is a great idea.  Too many people wait to let this happen when they pass away and the "kids" are already retired and financially stable.

[iris lily]

Hi all.  I have not posted in a while as I have already made my "stache and am happily enjoying my retirement for 10 years now.  Hubby is 75, I am 71.  We sold our house to my son last May and moved into our 2nd home on a lake.  He gave us a substantial down payment (30%) as he sold his house to buy ours.  He is paying us back every month as we had a lawyer draw up a land contract.

 I told my daughter I would finance a mortgage for her too if she needs it.  My daughter and her husband have decided to look for a different house so we told them we would go up to $350,000 since that is what we set up with our son.  The problem is my son's $350,000 cost us nothing as our house was paid off.  We have more than enough funds that are not IRA's to provide them the money, but as with mortgages, the early years are mostly interest.  We routinely pull out 4% of our 'stache every year and it has only grown every year well beyond that. 

My question is I am thinking about gifting the $350,000 to my daughter as part of her lifetime inheritance.  And at the same time, I will forgive the loan to my son.  Our 'stache is all going to them anyway after we pass.  It would get the money out of our estate as we would be self funding any nursing home costs.  The other option would be to just keep holding the 2 mortages and pay taxes on the interest and adjust our quarterly distributions from our 'stache. 

Any thoughts on this would be appreciated!  Miss Prim

Edited to say that both my children and their spouses make good money and are very responsible people.  My daughter is 43 and my son is 39.

You are my age. I always tell people my age to save money for the nursing home and expensive end of life care because you don’t know when you’ll need that money. So, if you have plenty of money, sure—give it to your kids now when they need it.

[Sibley]

In line with Iris Lily, the Medicaid claw back is a thing. I'd be very sure you're not setting yourself up for problems later. And have open conversations with both your adult children before you finalize things. Don't cause resentment.

Edit: Medicaid, not medicare.

[Catbert]

My DH and I are about your age.  A couple of years ago DH decided he wanted to help his son buy a house.  Over a two year period he cashed out all his IRAs, dividing the money between his two sons.  The bulk of our money was in my IRA/TSP and our brokerage accounts so draining his IRAs wasn't as wild as it sounds.  We have enough assets that Medicaid will never come into play.

As GilesMM said, it's good to provide the money when they need it, rather than much later. 

Be very careful that you understand the tax ramifications of whatever you'll need to sell as well as Medicaid look back if that might apply to you. 

[reeshau]

OP, is there a particular reason you want to hold their mortgage?  It seems they would qualify in the market.  Be aware that if you are offering below-market rates, that is also a gift.

https://smartasset.com/taxes/is-a-family-loan-taxable-income

If you have the cash, and are willing to file the gift tax forms to make the estate settlement straightforward, then why not?  Enjoy seeing your children flourish.

[Dicey]

@Miss Prim, it's good  to hear from you again! Welcome back!

We did something similar a couple years ago. My Bonus Kid is on the spectrum. He has a good job, and we wanted him to fly from our nest. We paid cash* for a condo, and put it in all of our names. We rehabbed it and turned it over to him turnkey. He pays the taxes, insurance, HOA, and utilities. We know he will never move out, as it's very convenient to his work. Eventually, he will inherit the whole thing, but for now we'll stay on title so that his dad or I can be on the HOA Board. We knew the reserves were underfunded when we bought it. We want to shephard it along to ensure that changes, and BK doesn't have the bandwidth. Currently, his dad's the Treasurer, and things are slowly improving.

I, too, sought advice here. The one that resonated the most was the person who said its better to give with a warm hand than a cold one. We did, and we're very happy with our decision.

*We were swimming in cash from a (legal) side hustle, so the question of what to liquidate wasn't an issue for us.

[Miss Prim]

Thank you all for your advice!  I think I will probably go ahead and gift my daughter the $350,000 and forgive my son's mortgage.  To clarify a few things, the reason we sold my son our house on land contract was because interest rates were over 7 % for a mortgage and we charged him 4.8 percent which was the minimum required by the IRS for the month we closed.  So we are in compliance with the IRS rules.  Also, we could self-fund nursing home costs for over 5 years to cover the look-back period even if both of us had to go in a nursing home tomorrow.

Again, thank you for all of your responses!  I knew I could get solid advice from all of you smart mustachians!

Miss Prim