Thank you everyone for the great feedback! Dang this is a good forum! Long live Mustachianism!
I am leaning toward saying no. Here's my thinking, thanks to all your excellent input.
I think what it really comes down to is that the costs (taxes, insurance, condo fees, maintenance, cleaning) and hassles (remote landlording) and risks (e.g. a big unexpected assessment) would be transferred to my wife and me long before the asset itself is actually transferred to us.
If, God forbid, her father died today and we inherited it, we'd probably sell the condo immediately to pay off my wife's student loans. But in this FIL-proposed scenario, we wouldn't be free to sell it and use the proceeds. We'd be getting liabilities but not a fully-controlled asset (yet).
I also have to compare the benefits to the next best scenario. My FIL plans to leave the condo to my wife anyway when he dies. So it's not really the case that we get an incremental $100,000 for taking on landlord duties and costs. Actually, the net benefits are just a reduced risk of the value being eaten up by FIL's late-in-life possible nursing home expenses.
And we're only protecting against that one category of expenses: Medicaid-funded nursing home expenses. But he hasn't made any provision for other expenses either. So he might come with a sob story and ask for the condo value back. To cover in-home care (not covered by Medicare) or even just other normal living expenses. It seems like we're walking a tightrope where he would get rid of his main asset to qualify for Medicaid if needed, but in doing so make himself even more financially vulnerable.
To make up some numbers, let's say there's a 33% chance of A) he needs Medicaid-covered nursing home care, a 33% chance of B) he needs the money for something else, and a 33% chance of C) he does fine, never needs the money and never needs nursing home care either.
In scenario A), the scheme worked. We saved the condo that otherwise would have been lost. We saved $100,000 by expending X amount of money and effort over the years. In scenario B) all our hassles and expenses will have been for nothing. We will be out X amount of money and effort with nothing to show for it. In Scenario C), we will have the condo, but we would have gotten it anyway if we had said no to becoming landlords.
If I assume that X is $25,000 in total headaches over the years (an optimistic assumption), I have a 33% chance of getting +$75,000 in value (call it $60,000 to account for the loss of the tax advantage of the step up in basis), a 33% chance at negative $25,000 for all the spending/hassles but no condo, and a 33% at a net negative 25,000 in value for all the spending/hassles to get the condo we would have gotten in the end anyway. The expected value of taking over the condo now under these assumptions is effectively zero.
But what really seals the deal and makes me want to say no is the family dynamics. Zamboni said, "he gets you to feel beholden to him for now for the "gift." This is the clincher. I have always been worried about this guy as a potential liability. He's not prepared for old age, he has terrible spending habits, debts, and no money, and he knows how to pull my wife's heartstrings. When my wife told me about his offer last week, my reaction was lukewarm and mildly skeptical, and she was hurt: "he's trying to do a nice thing for us."
The reality is that people who enter their 70s with zero savings and significant consumer debt aren't likely to leave inheritances to their children. But if he makes it seem like he has just magnanimously given my wife $100,000 in value, her resolve will weaken when it comes to our agreement (with each other) not to bail him out later. (Our agreement is that we'll never let anyone starve or go homeless, but we've agreed not to ever write bailout checks or lifestyle preserving checks to relatives.)
So on some level, this isn't just an attempt by FIL to offload his vacation home hassles, it's also a (subconscious?) attempt to curry favor as he stares down some inevitable standard of living reductions over the next few decades. I've seen other examples of this kind of thing from some older people. Sometimes they get an urge to tell their descendants about inheritances they plan to leave. "Oh, sweetie, I want you to have my silver set." It's like a (subconscious?) attempt to seem generous, keep the younger generation interested and visiting, etc. It's a bit sad, but it kind of works.
So, while I'm happy to celebrate FILs generous urges, it's really not true that he has $100,000 he can afford to give. He will probably need it.
So I'd rather he not use his primary asset passive-aggressively as a "gift" that will make my wife feel that she "owes" him.
And the silver lining of this whole offer is that it gives us an opportunity to say "No, we don't want to partner with you at our expense in your financial planning schemes" NOW, while he's still healthy and while he's made an offer with some obvious downsides. This will be emotionally easier than saying, for example, "No we can't help you with those unpaid medical bills" 10 years from now. And it will perhaps set expectations productively. Which I haven't done previously because he's never asked for money and I've been afraid to put that strain on the relationship and it wouldn't change his behavior anyway. But it would be nice to now set the precedent that we are not willing to partner with him in financial planning schemes.
So my dream scenario at this point would be to gently communicate at least some of the following:
- An expression of gratitude for the generosity intended by the offer
- An acknowledgement/statement that financial planning is challenging when resources are limited and government benefits may be needed
- A reminder that his daughter (and I) are still burdened by her large student loans and aren't likely to have extra cash or time for this type of thing in the foreseeable future. (And an implied and very gentle reminder that my wife's debt means he's really asking ME to take on these financial liabilities.)
- A firm thank you but no. We think it's great he wants to give her something of value, and he can do it now or later, but we aren't able to take on any liabilities or enter into any time-consuming schemes.
- And a gentle suggestion that he go get some general financial planning advice about general prep for getting older: the overall picture of assets, liabilities, income, and expenses, etc. (His urge to plan is great, but he started out focused on a very specific estate-planning tactic when he really should be asking himself more basic questions. (Like whether deciding to work half-time instead of full-time is a good idea while carrying consumer debt.))
What do you all think? Does this sound like the right conclusion?
And how do you like my idea of using this as a good opportunity to make the existence of financial boundaries a little more explicit? Any thoughts on finessing that?