Author Topic: Buying home from mother  (Read 21094 times)

Daisyedwards800

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Buying home from mother
« on: May 09, 2016, 10:59:36 AM »
My mother wants to keep her home in the family and not let it be taken by the state or any creditors.  She is almost 70 and wants to retire soon.  She has $200k in savings, plus she has a home valued between $525-700K.  She has no debt except an $80k mortgage remaining.  She has not had it appraised yet but using comps in the area these are the numbers.  House is in pretty good shape, it has a recent new roof, new boiler, new water pipes etc.  Oil heat, gas stove for extra heat in really cold weather. 

I have 3 siblings.  None of them would be in a position to buy the home from her.  One has a house of his own, one is married and not in financial position to buy, and the other is disabled (receives SSD).  She would expect to give 1/4 of her estate to each of us when she passes (if any left).

She wants to continue living in the home until she is not able to take care of herself.  She has a boyfriend and it is possible she would get remarried but as of now, that is not happening so she wants to plan for other possibilities.

She has floated the idea of selling the home to me (when I am financially ready) at a somewhat below market price (gifting equity) and paying me rent (essentially the property taxes of 10k a year and home owners insurance of $400 per month) plus possibly some other utilities that she wants.  I would be more comfortable having an owner-occupied home than dealing with the rental property tax issues (but also looking for advice on that).  I have heard I can gift her the difference between market value of rent and what she pays me each month to pay back the equity gift (if it's more than what my share should be).

I can probably handle a mortgage of $250k-300k.  If I did this, I would clear all of my other debt first (except the very low interest student loans) and have an emergency savings.  I have a lot in retirement relatively but not in cash so need to set that up in the next 1-2 years first.  I wouldn't want to do this with any debt.

But how can I get from a value of $525k (which she could sell it to me for, or maybe less depending on what she wants to do) to $250-300k mortgage? 

If I paid her out, I want her to have at least $400-500k in savings so she can pay me the $1250-1500 a month (she gets $2300 in SS a month). 

The house is in an area that is very hot, with summer homes and city people buying up second homes.  I'm very attached to the area and can see myself moving back at some point.  It's a beautiful and special area.  I think not having a home (either owned by me or her) there would hurt me so that is why I am considering this plan. 

Any input on how to make sure it's not too much expense for me?  I will have to pay a little rent myself because it's too far to commute for me to live there too.  If I got married, we would be renting another apartment together, or we would buy another home, but I don't expect to spend more than $1000-1200 a month on rent.

I make $113k at the moment and expect it to go up.  Again, wouldn't do this without building up some substantial cash savings.  I have $135k in IRAs, age 33 and am maxing those out (want to continue to do that).  If she passes one day or moves, I might sell this one and buy a small home in the same area so my long term expenses are lower.

So has anyone done this before?


merula

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Re: Buying home from mother
« Reply #1 on: May 09, 2016, 11:25:32 AM »
I wish I could find where I read it, but I recall reading this story about a son who bought a condo in order to rent it back to his mother at a reduced rent, and he wouldn't do it again. He ended up on the hook for a bunch of maintenance issues beyond what he expected, and there was a psychological impact to his relationship with his mother. They both knew that he was "gifting" her $100-$200 per month in lowered rent, but she was sending him money, so it felt like she was getting more financial support from her daughters who would visit and hand her $50-100 every few months. His recommendation would be that if he were going to do it again, he'd send her a fixed amount monthly as a rent subsidy rather than commit to buying.

Is the major issue that your mother doesn't have enough money to retire without tapping into her home equity? What if you were to put together an agreement with her and your siblings to give her money in exchange for a higher fraction of the equity? Like a reverse mortgage? For example, if you give her $25,000 a year over 4 years and the house later sold for $700,000, you would get $100,000 off the top and then 1/4 of the remainder. You'd also be in a good position to buy out your siblings for the house in the future, if you wanted it.

The major flaw in that plan is how to account for interest. Do you buy a fraction of the house at current market rates every year, and then total it up when it sells?

Another thing to think about is Medicaid eligibility for long term care. My understanding is that a person's primary residence is exempt up to certain limits in the assets calculation. If you bought your house from your mother and she then needed long-term care, she'd need to pay for it out of pocket until her assets ran out. BUT, if she still owned her house, she would be able to keep the asset.

snowball

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Re: Buying home from mother
« Reply #2 on: May 09, 2016, 12:26:45 PM »

merula

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Re: Buying home from mother
« Reply #3 on: May 09, 2016, 12:33:48 PM »
Thank you! My googling got me nowhere, and I had no recollection at all if it was a forum post or a blog entry.

Frankies Girl

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Re: Buying home from mother
« Reply #4 on: May 09, 2016, 12:57:38 PM »
I wouldn't do it. Sounds just plain awful all the way around.

Is your mother in danger of losing the house to the state or creditors? Then she'd be a poor risk to pay you rent. If she's not at risk to losing the house, then not sure why that is a major concern?

If she sells the house to you at a reduced cost, there may be tax implications on the difference between what you paid and what it was worth, especially if you needed to sell if for some reason. And you'd lose out on the stepped up cost clause from inheriting the property once she passes as well (this is a HUGE deal if she paid much less for the house years ago and it's now worth hundreds of thousands more).

And it seems like it would be a pretty large debt load for the maybe I might move back to the area someday thing to take on right now. I see no real benefit to doing this for you at all. You can always find a house or rent something if you want back in the area - it's not like there will never again be any property for sale/rent if you don't take on the burden of this property.

Do read that article that merula and snowball discussed - you don't want the headaches and hassle and hard feelings that something like this can cause.

Honestly, she should just stay there until she can't any more, and then sell the house if the funds are needed and find something smaller in the same area (or rent since that removes the burden of taxes and upkeep). All of the money she has, including the money she has tied up in the house, should be used to make sure she has what she needs through the end of her life, not be saved as an inheritance (especially since you're basically being asked to mortgage your own money and future to tie yourself down to a very expensive emotional albatross).

« Last Edit: May 09, 2016, 12:59:09 PM by Frankies Girl »

Daisyedwards800

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Re: Buying home from mother
« Reply #5 on: May 09, 2016, 01:07:08 PM »
The concern is so that Medicaid doesn't take the home should she go into a nursing home in the next 10-20 years.

Miss Piggy

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Re: Buying home from mother
« Reply #6 on: May 09, 2016, 01:11:36 PM »
The concern is so that Medicaid doesn't take the home should she go into a nursing home in the next 10-20 years.

In that case, I think you should talk to an attorney to make sure it's done right. My in-laws put their home & land in their children's names a few years ago for the same reason. There's an X number of years waiting period before it becomes legit and can't be touched by the state. I don't know the details.

ETA: No money changed hands.

frugaliknowit

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Re: Buying home from mother
« Reply #7 on: May 09, 2016, 01:15:44 PM »
The concern is so that Medicaid doesn't take the home should she go into a nursing home in the next 10-20 years.

Your mother should speak with an attorney well versed in estate planning to address this concern.

Her plan is a bad one, with too many things that can go wrong (for example, what if you decide later that you don't want to live there...?), with little chance that things will fall into place as she wishes.  If you can't get her to sell the place, a reverse mortgage would make sense (at least more sense than her plan...).  Somehow try to communicate that it's just a house and that her well being should be the priority.  One person with a $200K stash living on SS (alone?) has no business living in a home with $10k in taxes.
« Last Edit: May 09, 2016, 01:20:13 PM by frugaliknowit »

Daisyedwards800

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Re: Buying home from mother
« Reply #8 on: May 09, 2016, 01:17:22 PM »
She doesn't really need more money at this point, she wants the home protected.  Medicaid has a 5 year look back period so if she signs the house over, it's 5 years wait before they don't look at the asset.  The basis in the house would be what her basis is. 

Frankies Girl

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Re: Buying home from mother
« Reply #9 on: May 09, 2016, 01:38:38 PM »
The concern is so that Medicaid doesn't take the home should she go into a nursing home in the next 10-20 years.


But here's the thing; that house is holding most all of her actual money all tied up, so if she wants to use that money eventually to fund a nicer retirement home than medicare will pay for, she should realize that she'll need to sell it to realize that equity. You purchasing that house from her means that house is YOURS, not an inheritance. In a perfect world, your mom won't use any of that money and will be happy and on her own for another couple of decades and go out fast and easy and leaves a little money for you and your siblings. But what if she does end up needing every penny and passes with nothing left. How will your siblings feel about the fact that they will get jack while you have a 500K house? And what if they start demanding their share of said house? Or even worse, what if she does run through everything and then tells you that you'll have to sell the house anyway to fund her retirement home? You'll be screwed - either monetarily or emotionally (if you have to tell your mother no, the house is yours and she's on her own, how well you think that's going to fly?)

I get she's happy there and wants to stay there, but still wants the equity accessible just in case she needs to go into a nursing home or something else bad happens without letting the house out of the family. I get that, but you are proposing a very poor scenario for yourself, taking on serious debt, and having possible difficulties with your mother and siblings down the line if things don't go perfectly. All because she has an emotional attachment to a house.

This is all kinds of nope as far as I'm concerned. The only way this could work is if you go through a lawyer experienced with this sort of thing and make sure you both 100% understand what you're getting into and have an iron clad contract and every detail worked out and all family/interested parties (your mom's boyfriend) apprised of what exactly is happening so there are no long term repercussions 10 years from now.

But I still wouldn't do it, because that seems like a supremely poor decision as far as your own financial health and relationship with your mom and siblings. Again, you are saddled with enormous debt that has many, many strings attached and so many potential ways for this to end very, very badly for everyone involved.

And I agree with frugaliknowit - she shouldn't have a house that has that much equity tied up with such high taxes. It's being house rich and cash (investment) poor, and she's trying to use you to have her cake and eat it too... and it is absolutely a bad idea for you definitely. She's got to start looking at the house as just a place to live that might need to go someday, and not as some sort of legacy.





mm1970

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Re: Buying home from mother
« Reply #10 on: May 09, 2016, 01:40:09 PM »
The concern is so that Medicaid doesn't take the home should she go into a nursing home in the next 10-20 years.

In that case, I think you should talk to an attorney to make sure it's done right. My in-laws put their home & land in their children's names a few years ago for the same reason. There's an X number of years waiting period before it becomes legit and can't be touched by the state. I don't know the details.

ETA: No money changed hands.
This is what my husband's grandparents did.  They sold their house to their kids for $1.  I don't know any more details than that.  Eventually, the kids sold the house, bought one closer to the family, and moved grandparents in.  Grandparents paid rent.  Eventually grandparents went into a home.  Not a very nice one either.  What you get for free from the state isn't very nice.

(For me, personally, I'd rather not shelter assets to pass money on - seems better to just spend it to have a nicer place.  But YMMV.)

ETA:
I suppose the advantage to this was:
1.  Kids didn't need to take on a mortgage.  They just owned the house, got their inheritance early.
2.  Grandparents didn't have to pay property taxes anymore.  Kids paid property taxes.

So, when it was time to sell, the kids split the money from selling the house.  If one had wanted to keep it, then they would have had to buy out the others (I've seen that too).

The messiness comes in that you have to trust your kids to take care of you (not kick you out of the house), and you have to trust your siblings too.
« Last Edit: May 09, 2016, 01:47:16 PM by mm1970 »

Daisyedwards800

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Re: Buying home from mother
« Reply #11 on: May 09, 2016, 01:47:25 PM »
The concern is so that Medicaid doesn't take the home should she go into a nursing home in the next 10-20 years.


But here's the thing; that house is holding most all of her actual money all tied up, so if she wants to use that money eventually to fund a nicer retirement home than medicare will pay for,

She doesn't want to use any of the home equity to fund a possible nursing home.  She wants to protect it from Medicaid.

Spork

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Re: Buying home from mother
« Reply #12 on: May 09, 2016, 01:51:28 PM »
The concern is so that Medicaid doesn't take the home should she go into a nursing home in the next 10-20 years.


But here's the thing; that house is holding most all of her actual money all tied up, so if she wants to use that money eventually to fund a nicer retirement home than medicare will pay for,

She doesn't want to use any of the home equity to fund a possible nursing home.  She wants to protect it from Medicaid.

"Protect it from medicaid" literally means "I want to make myself broke."  I know people do this.  It's not a good plan, though.  Personally I think you're better off paying a little for LTC insurance than ending up in a Medicaid home.  From my own family experience: A high priced nursing home is a really awful place.  They go down hill from there.

Daisyedwards800

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Re: Buying home from mother
« Reply #13 on: May 09, 2016, 01:51:52 PM »
To protect myself, she would gift me equity (instead of taking the cash out) and also pre-pay rent.  Any difference in market rate of the rent and what she pays me would be considered a gift to her each year, which would eventually add up to the prepaid rent/gifted equity.

RavensBrew

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Re: Buying home from mother
« Reply #14 on: May 09, 2016, 02:08:53 PM »
Consider how the siblings might react too. My Mom's husband is going through a bunch of trouble right now because he got more of the estate even though he was the only one who took care of his Mom for the last 10 years.

Daisyedwards800

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Re: Buying home from mother
« Reply #15 on: May 09, 2016, 02:10:03 PM »
The concern is so that Medicaid doesn't take the home should she go into a nursing home in the next 10-20 years.
But what if she does end up needing every penny and passes with nothing left. How will your siblings feel about the fact that they will get jack while you have a 500K house?

The money she gets from selling the house to me would be our inheritance, not the house.  I wouldn't be getting inheritance from the house and I would pay back any gift equity through reduced rent from her.  It would all be documented on our tax returns, so the siblings could see that I didn't get anything else out of it.  If nothing was left of her cash in the end, it would leave me with no inheritance either.  I can see how someone who is not financially savvy who is a sibling may see the house and think it's his, but I would have to explain to him that from the house came the cash which was spent down in her old age.

SKL-HOU

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Re: Buying home from mother
« Reply #16 on: May 09, 2016, 02:21:28 PM »
I think the advantage you would have over your siblings would be that you would be getting your inheritance share early (by purchasing it at a lower price?), if I understand this plan correctly. So if your mom goes through all her money before passing, your siblings wouldn't get anything but you would have gotten your share now. Am I understanding it correctly?

Daisyedwards800

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Re: Buying home from mother
« Reply #17 on: May 09, 2016, 02:46:54 PM »
I think the advantage you would have over your siblings would be that you would be getting your inheritance share early (by purchasing it at a lower price?), if I understand this plan correctly. So if your mom goes through all her money before passing, your siblings wouldn't get anything but you would have gotten your share now. Am I understanding it correctly?

Yes but her paying me below market rent would essentially be gifting her back the money each year (documented on her tax return) for say 10 years until I paid her back the gift equity.

Daisyedwards800

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Re: Buying home from mother
« Reply #18 on: May 09, 2016, 02:47:46 PM »
So let's say she paid me below market $10,000 each year, which would be my gift to her.  After 10 years, I would have paid her back the gift equity (we can set an interest rate too so it's fair)

SKL-HOU

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Re: Buying home from mother
« Reply #19 on: May 09, 2016, 02:52:09 PM »
So let's say she paid me below market $10,000 each year, which would be my gift to her.  After 10 years, I would have paid her back the gift equity (we can set an interest rate too so it's fair)

Ok it makes sense. I guess the only issue may be if something happened to her before you pay back the temporary early inheritance. But then again the money or the house would be there so that would take care of itself.

You may think you thought of all the options and that you are being fair. But there is a potential your siblings won't see it that way, even if it is not true. I think this has potential to ruin your relationship with your siblings.

K-ice

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Re: Buying home from mother
« Reply #20 on: May 09, 2016, 03:03:34 PM »
It sounds like you can't afford it.
Quick question?
If she dies today could you afford to purchase 3/4 or a $450K mortgage?

But I know you are asking for creative advice so let's see. I know nothing about taxes and Medicare.
It is very unclear to me how Medicaid could "take" a house.

There would also be taxes and legal fees. Taxes would probably be on her to pay. Legal... they may be on you as a purchaser or split.

Assume it is worth $600K (You should get this professionally assessed three times. Keep at market rate. NO DEALS)

Your future share should be 25%.

I am assuming your mom wants $$ now for whatever reason, can you afford to pay for 40% today?

That is $240K.  Just assume you are a stranger and she sells 40% of her home to you for cash.
When your mom passes the remaining 60% of the home would be split among the 4 kids, 15% each.
If there is any remaining cash this should also be split 4 ways as if a stranger paid this to her. 

So your share now jumps to 55% and you control the ownership. How would your mom & siblings feel about that?

After her death your siblings probably want out. To make the math easy, lets assume it is still evaluated at the same price. You would now need another $270K (600*45%) to purchase their shares.  But I see huge fights here. So clearly get in writing how you will assess and split the property. Give yourself 6 months to set this up. 

So in the end, do feel you get a good deal paying $510K for a $600K house? If she had just passed away you would receive $150K from the estate. I feel like you are loosing money somehow and you haven't even paid interest to the bank. What kind of a place could you purchase for yourself with $150K down? 

Once you are co-owners with your mom she should be responsible for 100% of the utilities while you split the tax and maintenance.

But what is a fair way to split the tax & maintenance etc.  You own 40 she owns 60 so pay accordingly. Is she OK with that? What will it cost her? Was she hoping you would take care of her?

What about rent? Should she pay 40% market rent to you. (I would have a hell of a hard time asking my mom for rent. She might say ... "Oh I just thought the extra money I put into Jr's education account would cover Dec rent." "Oh I gave your sisters an extra Christmas gift because I already paid you $6000 this year." )

Determine what 40% market rent is and that is what she pays you so that you can pay the mortgage on the $240K. 
Again here KEEP AT MARKET RATE NO DEALS.

Can she afford her share of the utilities+rent+ tax + her 80K original mortgage?

Can you afford your share of the  tax + your 240K  mortgage?
Can you afford a mortgage of 240+270 if something happens to your mom?
This is probably the biggest worry but hopefully she lives for 20y and you pay down the 1st mortgage.
However, in 20y the remaining 270 "sibling equity" has grown to $400K at just 2%.
Will you be ready for that mortgage at that time?

If your mom can't live in the house, and you rent it out, how are the profits split?

If you mom can afford it, and if you can afford it, and if your siblings all know about it and have reviewed the contracts and they are so excited you will be able to keep the home in the family then go for it.

You can maybe make the number work if she "gifts" you some of the home now but I found that scenario more confusing to run.  You purchase 40% today.  60% remaining.  She gifts you your 15% today. You now own 55% and you inherit nothing from the house when she passes.  Split bills 45:55 with your mom. But she only pays you 40% market rent because she "gave" you the other 15% so you could actually own 55%. I find the gift thing hard because 15% today is $90K but 15% to your siblings in 10y may be $150K.

You can try other scenarios, the more money you put down now the easier it will be to justify to your siblings that x% of the house is yours. But the harder (emotionally) it will be to collect rent from mom. You just need to make it clear that the initial cash to purchase goes into the estate and you may get some back one day. 

I think it is clearer with no deals below market value and no gifting. Just determine market rates and set the % ownership based on what you can both afford purchase price and rent wise.


Daisyedwards800

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Re: Buying home from mother
« Reply #21 on: May 09, 2016, 03:08:06 PM »
We wouldn't have joint ownership.  I would own 100% of the home, and she would have gifted me $100k or whatever in equity which I would pay back in the form of her reduced rent. 

Daisyedwards800

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Re: Buying home from mother
« Reply #22 on: May 09, 2016, 03:19:55 PM »
Now looking at irrevocable trusts...

MrsPete

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Re: Buying home from mother
« Reply #23 on: May 09, 2016, 03:24:20 PM »
The concern is so that Medicaid doesn't take the home should she go into a nursing home in the next 10-20 years.
Nursing homes are not all created equal, and you don't want your mother to go into the nursing home for which Medicaid will pay. 

Daisyedwards800

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Re: Buying home from mother
« Reply #24 on: May 09, 2016, 03:26:21 PM »
The concern is so that Medicaid doesn't take the home should she go into a nursing home in the next 10-20 years.
Nursing homes are not all created equal, and you don't want your mother to go into the nursing home for which Medicaid will pay.

That's what she wants.

Another Reader

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Re: Buying home from mother
« Reply #25 on: May 09, 2016, 03:28:06 PM »
Your mother will have a huge capital gains tax bill to pay if she sells it to you.  If it passes through inheritance, then the basis will be stepped up and no capital gains tax will be paid by the heirs.

Spork

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Re: Buying home from mother
« Reply #26 on: May 09, 2016, 03:53:20 PM »
But I know you are asking for creative advice so let's see. I know nothing about taxes and Medicare.
It is very unclear to me how Medicaid could "take" a house.

First off: IANAL.  I have a very rudimentary idea of what this plan is, but I am just as likely to be incorrect as correct on the details.

Medicaid is a plan designed for destitute people.  If you have significant assets (lots of equity in a house in this case) you might not be considered "poor enough."  The nutshell of this plan is "make Mom poor by giving away her assets then we will gift it back to her a little bit at a time and let the system pay for it all."  The problems with this are: (1) Mom really now is poor; (2) it's an attempt to skirt the system -- and may very well be legal, but it's very much in a gray area; (3) Medicaid nursing homes are just an awful, sad pit of despair.  Good nursing homes are bad.  Bad nursing homes, much worse.

Now... as to why Medicaid might take the house.  They're sort of onto these sorts of plans.  Currently they look back 5 years to see who is working the system.  If they see stuff going back that far, they may try to collect on the asset after you die.  In other words, they might come back and seize the house to pay for the medical bills.

This is a bad idea.  If you really want to do it: absolutely run it past a lawyer.  Realize government rules can and do change.  You might get almost to "plan completion" and find they've changed the lookback to 10 years due to system abuses.  I'd also say you want to visit a Medicaid nursing home.  And really visit it.  Spend a whole day there.  Make sure you're going to be okay with your mom being there -- even if that is what she says she wants. 

K-ice

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Re: Buying home from mother
« Reply #27 on: May 09, 2016, 05:04:05 PM »
I think a lot of people are interested in this thread because we wish we could keep the family home(s). In my family there were once 3 properties. All waterfront, all very different. I have memories from all three. Now there is only one. And I don’t think anyone can afford to keep it once the head of the family passes.

So I feel for you, but I also want it to be fair for your mom and siblings and also not a complete money pit for you.

So if you want to own the entire thing would this work?

Evaluate the property:
600K evaluated price, be sure the siblings know the starting point. I really think it is important to not give a DEAL or below market value at this point.

Scenario 1
50% You get a bank mortgage for 300K, give all of this money to your mom.  (I am not sure where you get the funds to pay this off, but that is a separate issue.)
25% Your mom “gifts you 150K”.  No money changes hands. This is your early inheritance.
25% Your mom lends you 150K for 20y at 5%.  Instead of you paying her the $990 per month and then her paying you $990/month rent you two just write this off.  (You can play around with the years and interest. Can she legally charge no interest? Maybe just make it simple $1000/month for 150 months or 12.5 years. That’s a great deal for you but sucks for her and her estate.)  This is close to your $10,000 per year number.

Scenario 2
50% You get a bank mortgage for 300K, give all of this money to your mom.  (I am not sure where you get the funds to pay this off, but that is a separate issue.)
50% Your mom lends you 300K for 20y at 5%.  Instead of you paying her the $1980 per month and then her paying you $1980/month rent you two just write this off.  (You can play around with the years and interest. Can she legally charge no interest? Maybe just make it simple $1000/month for 300 months or 25 years. That’s a great deal for you but sucks for her and her estate.)

Comments
I think this “loan” should be in the form of a second mortgage on the home and if your mom passes before the time is up you would owe her estate the outstanding money.  If she lives for more than the loan period your debt to her is effectively paid. Do you now start charging her rent? Maybe you just trade $1000 a month until she passes. If it is not fully paid you owe the estate. If your mom keeps living then consider any extra rent not paid your interest. But I would get her mortgage off the title at that point.
 
How does the estate deal with any remaining assets in both scenarios? Case 1 I think you should get nothing of what is left, the other 3 split the remaining. Case 2 I think you should still get ¼ of what is left.

I think in both cases your mom & her estate might be short changed.  She owes an $80K mortgage. What did she purchase the house for?  I will assume $100K so a capital gain of $500 * 20% = 100K tax.  (I’m not sure of the tax rate, check your own math.) So out of the $300K cash you give her she now only has $120K. She just sold her $600K home and has $120K in her pocket…    She is now living rent free, property tax free and mortgage free but I am not sure she will have enough money.

Both of you may have some income tax issues. She might, especially if she is charging you interest on the loan. You may need to pay tax on the "rent" however you can deduct many expenses.

What happens if she is alive but not living in the house? Now you can really rent it out but you should probably pay her back her loan.

Finally, you need to check your budget too. You now have a $300K mortgage on a luxury property that you don’t live in or rent out (you’re not actually getting any rent money). You own it 100% so you need to pay the tax, maintenance etc.

Please let us know if you do find some way of pulling this off.


SKL-HOU

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Re: Buying home from mother
« Reply #28 on: May 09, 2016, 08:01:37 PM »
How about this? When your mother is not capable of taking care of herself, she comes and lives with you or one of your siblings? Why doesn't anybody consider this? It is not like it can'tbe done because it is done all over the world.

norabird

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Re: Buying home from mother
« Reply #29 on: May 09, 2016, 08:21:41 PM »
It might be best to look at very nice facilities that have the option of moving to assisted living later on. It sounds like it doesn't make sense for her to stay in the house so she should be proactive about planning for the future by finding a better living situation, not using this bizarre workaround.

wenchsenior

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Re: Buying home from mother
« Reply #30 on: May 10, 2016, 08:05:01 AM »
How about this? When your mother is not capable of taking care of herself, she comes and lives with you or one of your siblings? Why doesn't anybody consider this? It is not like it can'tbe done because it is done all over the world.
Uh... it's done all over the world mostly because there is no alternative in most places. (Same reason single-person households and smaller families increase as wealth rises in developing nations...when the opportunity arises for people to to live independent of their families, and have privacy and autonomy and independence, more and more of them go for that option).

Care-giving can be incredibly emotionally, physically, and financially difficult and many people are just not cut out for it. I've seen it absolutely destroy relationships and physical health of people in my family. Some people are great at it, but for those who aren't, they should be very honest with themselves and look into other options if they are available.

Daisyedwards800

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Re: Buying home from mother
« Reply #31 on: May 10, 2016, 08:54:54 AM »
Your mother will have a huge capital gains tax bill to pay if she sells it to you.  If it passes through inheritance, then the basis will be stepped up and no capital gains tax will be paid by the heirs.

No she won't.  When my father died, it got stepped up in basis by a lot and she put improvements into it totaling over $150k.  It will be a miniscule tax bill like $10-30k.  If she sells it to me after retirement she won't even have to pay capital gains because her income will be so low.

Daisyedwards800

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Re: Buying home from mother
« Reply #32 on: May 10, 2016, 09:50:35 AM »
It might be best to look at very nice facilities that have the option of moving to assisted living later on. It sounds like it doesn't make sense for her to stay in the house so she should be proactive about planning for the future by finding a better living situation, not using this bizarre workaround.

I don't think it's too bizarre, because she's been in the house nearly 50 years.  She wants to stay.  The area is so beautiful.  I want the house myself one day but whether I buy sooner or later is the question.

Drifterrider

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Re: Buying home from mother
« Reply #33 on: May 10, 2016, 09:55:57 AM »
The concern is so that Medicaid doesn't take the home should she go into a nursing home in the next 10-20 years.

Medicaid has a five year "look back" provision.  Can your mother pay off the mortgage?  Is so, she can put the house into an irrevocable trust and as long as five years have passed between that date and her applying for Medicaid, the state generally can't get the house for Medicaid repayment.

Daisyedwards800

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Re: Buying home from mother
« Reply #34 on: May 10, 2016, 09:59:06 AM »
The concern is so that Medicaid doesn't take the home should she go into a nursing home in the next 10-20 years.

Medicaid has a five year "look back" provision.  Can your mother pay off the mortgage?  Is so, she can put the house into an irrevocable trust and as long as five years have passed between that date and her applying for Medicaid, the state generally can't get the house for Medicaid repayment.

Now there is an idea!

Drifterrider

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Re: Buying home from mother
« Reply #35 on: May 10, 2016, 10:10:48 AM »
The added benefit is having the house in trust means it also bypasses probate when the owner dies (According to Suze some states charge a hefty price for probate regardless of the size of the estate).  The downside, once something is in an IRLT (irrevocable living trust) the former owner can't get it back.  I spoke with an attorney at length about this (for my mother).  A living trust does not protect the asset from Medicaid or other legal claims whereas a IRLT generally does (I use generally because there is no such thing as "Iron Clad" law.  Iron rust too :)

In your situation I would consult with an attorney who specialized in Elder law WITH your mother present. 

iris lily

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Re: Buying home from mother
« Reply #36 on: May 10, 2016, 10:25:08 AM »
The look back  period has traditionally been 5 years. It can change any moment.

Daisyedwards800

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Re: Buying home from mother
« Reply #37 on: May 10, 2016, 10:35:50 AM »
The added benefit is having the house in trust means it also bypasses probate when the owner dies (According to Suze some states charge a hefty price for probate regardless of the size of the estate).  The downside, once something is in an IRLT (irrevocable living trust) the former owner can't get it back.  I spoke with an attorney at length about this (for my mother).  A living trust does not protect the asset from Medicaid or other legal claims whereas a IRLT generally does (I use generally because there is no such thing as "Iron Clad" law.  Iron rust too :)

In your situation I would consult with an attorney who specialized in Elder law WITH your mother present.

So the trust terms decide what can be done with the house if it's in an irrevocable trust, not my mother?

MrsPete

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Re: Buying home from mother
« Reply #38 on: May 10, 2016, 11:35:05 AM »
The concern is so that Medicaid doesn't take the home should she go into a nursing home in the next 10-20 years.
Nursing homes are not all created equal, and you don't want your mother to go into the nursing home for which Medicaid will pay.

That's what she wants.
Has she actually gone to look at these places?  I can't imagine seeing these places and saying, "Yes!  Sign me up!" 




Spork

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Re: Buying home from mother
« Reply #39 on: May 10, 2016, 11:46:09 AM »
The concern is so that Medicaid doesn't take the home should she go into a nursing home in the next 10-20 years.
Nursing homes are not all created equal, and you don't want your mother to go into the nursing home for which Medicaid will pay.

That's what she wants.
Has she actually gone to look at these places?  I can't imagine seeing these places and saying, "Yes!  Sign me up!"

More importantly:  Have you and siblings looked at them?  By the time she needs to live in one of them, she will likely not be mentally capable of making the decision.  Someone with medical power of attorney will have to make the decision and live with the emotional results.

norabird

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Re: Buying home from mother
« Reply #40 on: May 10, 2016, 03:23:59 PM »
I understand your mom has emotional ties to the house, but I would still recommend thinking hard about whether staying there for the long term is the best plan. This includes really considering if you are definitely going to move back into the home, when that would happen, and how your siblings feel.

Daisyedwards800

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Re: Buying home from mother
« Reply #41 on: May 10, 2016, 03:37:39 PM »
I understand your mom has emotional ties to the house, but I would still recommend thinking hard about whether staying there for the long term is the best plan. This includes really considering if you are definitely going to move back into the home, when that would happen, and how your siblings feel.

Our family has had homes out there for about 80 years so I think either this home or another home out there would be in the cards.  I like this one because we know all the ins and outs, it doesn't flood at all (even though near the water it's up high) and it's in a really pretty area with farmland and beaches nearby.  It's a gem!

MrsPete

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Re: Buying home from mother
« Reply #42 on: May 10, 2016, 03:43:04 PM »
More importantly:  Have you and siblings looked at them?  By the time she needs to live in one of them, she will likely not be mentally capable of making the decision.  Someone with medical power of attorney will have to make the decision and live with the emotional results.
Well, maybe not.  Consider one of the most common issues that sends elderly people into nursing homes:  A broken hip.  It's quite common, and its treatment is very difficult for families to manage at home, yet it doesn't affect a person's mental faculties in the least.  People vary.  Illnesses, accidents and disabilities (and all their multitude of combinations) vary. 

It's something to discuss with your mother BEFORE a crisis. 

My husband and I made up a lengthy document for our children a couple years ago, which includes our will, our wishes for various situations, and lists of all our financial holdings.  It wasn't difficult at all (emotionally, I mean) for us to do this now; I suspect it would feel different if one of us had just been diagnosed with some awful disease and we had reason to think the information would be needed soon.  Our plan is that we'll go through this document every year when we do our taxes; this means that someday when we hit a health crisis (and every one of us will), it won't take as much effort to just look through and make revisions. 
« Last Edit: May 10, 2016, 03:46:58 PM by MrsPete »

Drifterrider

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Re: Buying home from mother
« Reply #43 on: May 11, 2016, 04:33:55 AM »


So the trust terms decide what can be done with the house if it's in an irrevocable trust, not my mother?

NO.  Your mother dictates the terms of the trust (it is hertrust.  She can specify that if the house is to be sold, the proceeds will remain in trust for her use.  She can specify that if she no longer lives in the house the house can/should/must be rented with the proceeds to go to her.  The best way to control something you no longer legally own (or from beyond the grave) is a trust.


Fishindude

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Re: Buying home from mother
« Reply #44 on: May 11, 2016, 07:09:41 AM »
You are kind of in a tough spot because Mom is settled in that house, wants to stay there, and is emotionally attached to the place.
In reality, she needs to be getting into someplace cheaper.   Having a half million dollar home (that you still owe on) and only $200K in savings at 70 years old is not an ideal situation.
She should sell the home to be mortgage free and to put some more money aside for retirement, then move into an economical rental where she does not have to worry about a mortgage, upkeep expenses and taxes.   If she nets $400K after sale of the home, that's still only $600K for retirement.   Not horrible with social security, but not exactly living large either.

Sounds like the idea of you buying the place will just put an unnecessary burden on you.   She has enough assets to live on, just needs to be convinced to utilize them properly.

Miss Piggy

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Re: Buying home from mother
« Reply #45 on: May 11, 2016, 07:13:35 AM »
You are kind of in a tough spot because Mom is settled in that house, wants to stay there, and is emotionally attached to the place.
In reality, she needs to be getting into someplace cheaper.   Having a half million dollar home (that you still owe on) and only $200K in savings at 70 years old is not an ideal situation.
She should sell the home to be mortgage free and to put some more money aside for retirement, then move into an economical rental where she does not have to worry about a mortgage, upkeep expenses and taxes.   If she nets $400K after sale of the home, that's still only $600K for retirement.   Not horrible with social security, but not exactly living large either.

Sounds like the idea of you buying the place will just put an unnecessary burden on you.   She has enough assets to live on, just needs to be convinced to utilize them properly.

I completely agree. Something about this whole scenario feels very much like "enabling" to me. Fishindude captured what I've been thinking since I read the OP.

If this weren't your mother, but rather a complete stranger's post, how would you feel about the situation?

Daisyedwards800

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Re: Buying home from mother
« Reply #46 on: May 11, 2016, 08:16:51 AM »


So the trust terms decide what can be done with the house if it's in an irrevocable trust, not my mother?

NO.  Your mother dictates the terms of the trust (it is hertrust.  She can specify that if the house is to be sold, the proceeds will remain in trust for her use.  She can specify that if she no longer lives in the house the house can/should/must be rented with the proceeds to go to her.  The best way to control something you no longer legally own (or from beyond the grave) is a trust.

But she can direct the trust after it is created? So if she wants to sell she can?

Catbert

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Re: Buying home from mother
« Reply #47 on: May 11, 2016, 10:47:14 AM »


So the trust terms decide what can be done with the house if it's in an irrevocable trust, not my mother?

NO.  Your mother dictates the terms of the trust (it is hertrust.  She can specify that if the house is to be sold, the proceeds will remain in trust for her use.  She can specify that if she no longer lives in the house the house can/should/must be rented with the proceeds to go to her.  The best way to control something you no longer legally own (or from beyond the grave) is a trust.

But she can direct the trust after it is created? So if she wants to sell she can?

"Irrevocable" means it can't be revoked so no she can't sell the property or otherwise direct what happens to it. 

MrsPete

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Re: Buying home from mother
« Reply #48 on: May 11, 2016, 11:06:46 AM »
In reality, she needs to be getting into someplace cheaper.   Having a half million dollar home (that you still owe on) and only $200K in savings at 70 years old is not an ideal situation.
I wonder if a nice condo might not be a better choice for her.  No yard work, small space to keep clean. 

"Irrevocable" means it can't be revoked so no she can't sell the property or otherwise direct what happens to it.
I don't know about trusts, but does it really mean you can never sell?  Even if the neighborhood starts to turn, even if they build a chicken processing plant across the street?  Even if your mom needs the money badly for some other purpose?  I don't think I'd want to be tied into a "never" clause with real estate. 

Daisyedwards800

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Re: Buying home from mother
« Reply #49 on: May 11, 2016, 11:09:25 AM »
In reality, she needs to be getting into someplace cheaper.   Having a half million dollar home (that you still owe on) and only $200K in savings at 70 years old is not an ideal situation.
I wonder if a nice condo might not be a better choice for her.  No yard work, small space to keep clean. 

"Irrevocable" means it can't be revoked so no she can't sell the property or otherwise direct what happens to it.
I don't know about trusts, but does it really mean you can never sell?  Even if the neighborhood starts to turn, even if they build a chicken processing plant across the street?  Even if your mom needs the money badly for some other purpose?  I don't think I'd want to be tied into a "never" clause with real estate.

Yeah that seems weird you can't sell it?

But as far as the condo idea goes, she will not go for that.  She needs outdoor space to be happy, and she doesn't like neighbors, very private woman.  She would be miserable in a condo.  In addition, I know from experience that condo fees are upwards of $1000 even for a studio condo for fees and association dues and also assessment can be thousands per year.