Author Topic: Gift house to dad to avoid his liability risk to me?  (Read 4958 times)

Mr. Green

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Gift house to dad to avoid his liability risk to me?
« on: January 22, 2018, 02:26:35 PM »
I own the house my father lives in and the car he drives. Other than the mortgage, he's able to pay all his bills and get by on his social security check, medicaid, and food stamps. The balance on the mortgage is about $25,000. I've been considering paying it off and gifting the house to him because I'm concerned about the liability risk he presents. We have substantial assets to protect and I've already given up my cash fire hose of a career (FIRE). He is disabled and eccentric, his body is beat up but his mind works wonderfully, other than the severe ADHD that causes him the usual problems like misplacing and forgetting things. He's the most mechanically inclined person I know, which means he's also turned the house into a tinkering shop. He messes with electronics, LEDs, electrical motors, etc. The inside and outside of the house are a train wreck. You'd liken it to a hoarder but everything is for a project. Some of his projects are for no other reason than to satisfy his curiosity. For instance, he built an air compressor that uses 3 motors so it will run quietly because he's a night owl and is frequently outside tinkering well after midnight. In the city, on lots less than 1/4 acre he wanted something that wouldn't bother the neighbors. The compressor is quite impressive, it'll still fill a 150 gallon tank with an air hose wide open, but it looks like a monster and it's ugly. Most of his projects are this way, and quite a few of them are less than safe for the average person.

The house is on the edge of a rougher neighborhood so there have been a couple issues in the 5 years we've owned the place. There have been a couple break ins. If someone were trespassing, there's all kinds of things in the yard or in the house someone could end up injured over. The place is absolutely in violation of the city's public nuisance law. We got a couple letters several years ago and he cleaned up a little. We got another letter about a year ago and then heard nothing more. He keeps the yard well fenced to try and hide the junkiness of the place and minimize the chances anyone will bother him.

We bought the place as a foreclosure for $50,000. I'd guess it's worth $30,000-50,000 in its current state. Prices in the area have gone up and there's older homes all around his that are being fix/flipped but the condition of the home has definitely gone downhill. If we fix/flipped the house ourselves it would bring $100,000-130,000 so there's a decent upside.

Dad can own a house and a car without it affecting his medicaid eligibility. The biggest risk to us not inheriting the house back would be potential future liens. My dad has poor credit from years of destitution and no savings so it's easy for him to walk away from bills if he feels like there's a problem. He hasn't done this recently but when I was younger this was common. Things have been pretty smooth now that he has a stable roof over his head and enough income to pay for the basics.

My biggest concern with continuing to own the place would be a scenario like a break in where someone gets injured on the property and then somehow my insurance company bows out of the picture because the condition of the place violates some aspect of the policy. The house isn't condemned or structurally deficient, it's just all the stuff he has and does around the place. I'd still be involved in making sure the bills get paid and the place doesn't actually fall apart but at least I'd be off the hook from a liability perspective.

Am I right to be concerned about this? It doesn't seem like a huge risk to gift the house to him and assume we'll inherit it back. I guarantee you my sister won't want it so there won't be any family squabbles. Hell, I might not want it by then. lol

LaineyAZ

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Re: Gift house to dad to avoid his liability risk to me?
« Reply #1 on: January 22, 2018, 03:09:52 PM »
I'm in an almost identical situation except I own the house where my older sibling lives.  Otherwise, just about the same set of facts including my brother being a semi-hoarder.
I'd hesitate to transfer title to your dad, though, because of 2 things:  a) he may have prior debtors who find out he owns a property and they'll slap a lien on it for his debts; and b) as you say, if a stranger or child got onto the property and got hurt, there's probably not enough liability insurance to cover their claim and they would quickly put a lien on the house for their unpaid damages - in that case, he'd be homeless. 
If it were me, I'd keep title in your name. Is the liability the biggest concern for you?

AccidentalMiser

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Re: Gift house to dad to avoid his liability risk to me?
« Reply #2 on: January 22, 2018, 03:22:53 PM »
Spend $200 and talk to an elder care lawyer.  You make a strong case for and against what you're discussing.  At any rate, get a solid umbrella policy to protect yourself.

Mr. Green

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Re: Gift house to dad to avoid his liability risk to me?
« Reply #3 on: January 22, 2018, 03:58:37 PM »
He's not mentally incompetent or anything. Liability is my only concern. I spent a decade working in a career for the money, not because I liked the job and now that I'm FIRE and my wife is ready to walk away from her job I want to make sure we're protecting our heard earned stash. I suppose I'm going to have to read all the fine print in our homeowner's insurance policy to see if there's any language in there that could cause a problem. My biggest concern is some type of catch all where someone could say "this place wasn't kept in reasonable shape" or something like that and it violates a less-tan-clear clause in the policy that would allow them to wiggle out of any participation in a claim/lawsuit. I understand the chance of this is incredibly small but it's still something I think about.

Mr. Tako, from Mr. Tako Escapes, blogged about spending 2 years as the defendant of legal action through insurance and the stress that accompanied it was huge, even though he had insurance. I would happy give that house away to avoid being the subject of a lawsuit, even with a couple million of umbrella coverage.

Does umbrella insurance cover everything, like a blanket, even further than something like homeowner's would cover? Or would the umbrella not be helpful if I was facing a situation where the insurance company said their homeowner's coverage didn't apply due to XYZ.

LaineyAZ

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Re: Gift house to dad to avoid his liability risk to me?
« Reply #4 on: January 23, 2018, 08:00:33 AM »
I believe you have to have a minimum dollar amount of insurance already with the company for your other needs - car, home, business, etc. - in order to even get an umbrella policy.  Your agent can confirm.

Also the best advice I got regarding insurance is to read the fine print on what it does not cover rather than what it does cover. 
A final thought:  would your father agree to an outdoor clean-up if you told him a white lie that the insurance company required it?  Sometimes people are more amenable when a neutral 3rd party says something has to be done vs. their own family member asking for it to be done. 

PoutineLover

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Re: Gift house to dad to avoid his liability risk to me?
« Reply #5 on: January 23, 2018, 08:05:12 AM »
I don't know much about insurance, but why would he be liable if someone broke in? Seems like they would be trespassing at their own risk. Maybe if he invited someone over there'd be a case, but it seems ridiculous that a homeowner would be responsible for a burgler's injuries.

Bliss

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Re: Gift house to dad to avoid his liability risk to me?
« Reply #6 on: January 23, 2018, 08:11:49 AM »
Have you explored the possibility of transferring ownership of the house into an LLC with adequate liability coverage?

Blonde Lawyer

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Re: Gift house to dad to avoid his liability risk to me?
« Reply #7 on: January 23, 2018, 08:15:02 AM »
Check out your state's homestead exemptions.  If you transfer him the house, it might be exempt from creditors up to a certain value.  It sounds like it would be under that value.

Sibley

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Re: Gift house to dad to avoid his liability risk to me?
« Reply #8 on: January 23, 2018, 08:49:28 AM »
So, why would you consider giving away a house because of the clutter and risk attendant upon it, rather than fixing the root problem? Your dad is a hoarder. He might hoard projects and materials rather than trash or clothing, but the end result is the same.

Work with him, or get a professional to do it, to clean up and organize and help him put some structure in place for the future. The goal isn't to throw out all the stuff. The goal is to get the junk out of the yard (no more letters!, not going to hurt yourself walking through the yard!), keep the overall amount of stuff in check, and allow your father to tinker.

Lulee

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Re: Gift house to dad to avoid his liability risk to me?
« Reply #9 on: January 23, 2018, 08:55:38 AM »
Actually, based on your first post, you are concerned about more than the liability that this house exposes you to.  You are worried in a smaller way that if he owns it, he'll lose it.  That house has given him stability to pursue his interests as well as live comfortably and he wouldn't find another situation like that unless your provide it for him all over again.  All the challenges you both face now will simply be transferred to a new location, just with you poorer the cost of a new home for him.

I used to work in IT at a local insurance company but am not well versed in insurance so you should get an agent to confirm (talking to your own agent MIGHT trigger them to re-examine your policy so maybe find a different agent to chat with).  I'd bet ALL that I own that given the repeated notices from the city as well as the history of break-ins, that would give the insurance company all the grounds they need to wash their hands of you.  It's not like you can show that you've cleared up the property of all the issues that caused the city to send those notices and that the city is now happy with the situation.

Accidental Miser is right about talking to a lawyer specializing in elder care.  Your dad may not have dementia, but he does have long standing and ongoing behaviors that are exposing you to liability as the owner of the property and that should be enough to make the lawyer's advice to be valid.  In your state there may be that some form of trust or something like it that will allow you to keep your dad where he's productive and happy at the same time as it keeps your personal assets legally isolated from any liability issues.  The lawyer or someone at the firm may be able to examine the insurance policies you have to see what coverage you have/may need without alerting any insurance underwriters to reasons they might want to re-write or even terminate your coverage.

I don't suppose your dad would consider moving all his projects to a commercial property you could rent at a reasonable rate for his workshop?  That would remove all liability issues around his home and he could continue to work happily, day or night, with everything safely under lock & key when he's not there.  The shop & his work might need to be wrapped up in a business entity with commercial liability insurance policies to protect him and his inventions; the lawyer could say more definitively.

BTDretire

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Re: Gift house to dad to avoid his liability risk to me?
« Reply #10 on: January 23, 2018, 09:29:31 AM »
I'm in an almost identical situation except I own the house where my older sibling lives.  Otherwise, just about the same set of facts including my brother being a semi-hoarder.
I'd hesitate to transfer title to your dad, though, because of 2 things:  a) he may have prior debtors who find out he owns a property and they'll slap a lien on it for his debts; and b) as you say, if a stranger or child got onto the property and got hurt, there's probably not enough liability insurance to cover their claim and they would quickly put a lien on the house for their unpaid damages - in that case, he'd be homeless. 
If it were me, I'd keep title in your name. Is the liability the biggest concern for you?

 I also have a simular situation. I was left 1/2 a house with my sister, she is living in the house paying me $0.
I have approached her about getting a mortgage to buy me out, but she has a short time on her job and no assets and I'm sure some debt. I'm hoping this spring, she will either sell it or get a mortgage. I have considered it a liability I don't need and if something doesn't work out the first half of this year I may just deed it over to her.

partgypsy

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Re: Gift house to dad to avoid his liability risk to me?
« Reply #11 on: January 23, 2018, 09:55:30 AM »
One reason not to give him the house, is if he needs long term care he may need to sell the house to get care. Or if he is in that situation, and then you try to get the house back in your name, they may try to claw it back. Though the neighborhood is rough now, it may appreciate in value. For that reason I would lean towards keeping it in your name, but work with him on these other issues.

Mr. Green

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Re: Gift house to dad to avoid his liability risk to me?
« Reply #12 on: January 23, 2018, 10:55:32 AM »
If the house was transferred to him, I don't think debtors could take the house from him. They could place a lien on it, but he would be able to continue living there and the debt issue would have to be resolved when he could no longer stay there or was dead. I'll look into the homestead exemption thing.

As far as the clutter goes, I've given up trying to keep the place in nice shape. My father has had me as a crutch his entire adult life and this house was meant to extricate myself from that. I pay the mortgage, he covers the rest. It's a situation that has worked out great and has allowed me to have some sort of relationship with him that isn't a burden. As much as I want to see the place cleaned up, I will not put myself through the stress of monitoring the place. What is my recourse anyway? I'm not kicking him out so he's living on the street. We've been there and the stress that put on me was something I won't volunteer myself for again. He doesn't get enough money from social security to even rent a room somewhere else. It seems that no matter the boundaries I've set over the years he always slides past the line over time. We graduated from no smoking to no plate sized holes in the exterior walls. That's how ridiculous it can get. I'm not dealing what that. So I made the decision to not care, otherwise I would always be angry.

I could build a garage on the property but he doesn't take care of stuff. The garage would end up damaged within a few years. Doors or siding would have dents and dings, greatly diminishing the value. He'd drill holes for something doing this or doing that. I'd get all bent out of shape about it because I'm throwing more money away and in the end I'd be right back where I started.

If I did gift him the house I would love to get it back after he dies, assuming it's not in ruins. But if there was a serious concern over liability then to me the risk of a creditor putting a lien on it is probably worth the peace of mind to know that 5 years into my retirement I won't end up on the hook for something stupid he's done. Maybe the risk really isn't that great. That's the part I'm trying to figure out.

To give you a clue of how rough of shape the place is in. If my dad up and died tomorrow, I'd seriously weigh whether or not to simply walk away from the mortgage. North Carolina is a non-recourse state and I don't really need my credit so much that a bankruptcy would bother me all that much if we decided it wasn't worth trying to get rid of all the shit that was there. If it was just normal hoarder stuff that would be one thing but half of it would require a box truck to get out of there because it's big and heavy. He has a box truck, which is why stuff like that appears in the first place. Maybe that's a better solution in the end. Clean up all the huge stuff and eliminate the box truck. There's only so much I can do to push though. Like I said, he's not mentally incompetent, and he knows I'm not going to toss him on the street.
« Last Edit: January 23, 2018, 11:03:31 AM by Mr. Green »

nwhiker

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Re: Gift house to dad to avoid his liability risk to me?
« Reply #13 on: January 23, 2018, 11:55:19 AM »
So I work in the liability department of an insurance company and many years ago handled claims in North Carolina so hopefully I can help you with the two questions. First I would say that you would be best served by eeeading your policy (specifically the exclusions) and maybe chatting with a lawyer.

Unless the law has changed recognizes two types of land users, invitees and trespassers. Since you only mentioned trespassers in common law your only duty is avoid willful or wanton injury. So that should be a concern. Invitees would be my concern as there would be a need to warn them of hidden hazards, repair dangerous conditions, and inspect the premises.

Regarding what affects the nuisance violations has on the liability policy there is likely none, though there are some caveats. First to understand how it works your policy says it will defend you and pays damages which are covered under the policy. Then it lists exclusion to carve out specific circumstances it does not want to ensure. I have never seen a homeowners policy that excludes injury if there is some violations of nuisance law. In fact most injury claims are going to allege some violation of a law, statute or building code.

Now for the caveats. Are you renting the home to your father and if so did you tell the insurance company? Was the property in its current condition when you got insurance and did you have to make any statements about its condition? While these aren't excluded if either apply the company can rescind a policy and give you back your money if they can show they would not have written the policy had you provided that information.

I see two risks for you. Though most homeowners I surer don't do this they could decides to inspect the premise or you have a property claim and they see the condition. They might decide not to renew the policy. Also if he has hoarder like tendencies the house typically falls into disrepair and can become defensively damaged. This is not covered under your property policy. So you have a home in need of repairs and no coverage.

neophyte

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Re: Gift house to dad to avoid his liability risk to me?
« Reply #14 on: January 23, 2018, 12:04:53 PM »
What about getting him a liability only renter's insurance policy? They're pretty cheap.

Mr. Green

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Re: Gift house to dad to avoid his liability risk to me?
« Reply #15 on: January 23, 2018, 12:14:32 PM »
So I work in the liability department of an insurance company and many years ago handled claims in North Carolina so hopefully I can help you with the two questions. First I would say that you would be best served by eeeading your policy (specifically the exclusions) and maybe chatting with a lawyer.

Unless the law has changed recognizes two types of land users, invitees and trespassers. Since you only mentioned trespassers in common law your only duty is avoid willful or wanton injury. So that should be a concern. Invitees would be my concern as there would be a need to warn them of hidden hazards, repair dangerous conditions, and inspect the premises.

Regarding what affects the nuisance violations has on the liability policy there is likely none, though there are some caveats. First to understand how it works your policy says it will defend you and pays damages which are covered under the policy. Then it lists exclusion to carve out specific circumstances it does not want to ensure. I have never seen a homeowners policy that excludes injury if there is some violations of nuisance law. In fact most injury claims are going to allege some violation of a law, statute or building code.

Now for the caveats. Are you renting the home to your father and if so did you tell the insurance company? Was the property in its current condition when you got insurance and did you have to make any statements about its condition? While these aren't excluded if either apply the company can rescind a policy and give you back your money if they can show they would not have written the policy had you provided that information.

I see two risks for you. Though most homeowners I surer don't do this they could decides to inspect the premise or you have a property claim and they see the condition. They might decide not to renew the policy. Also if he has hoarder like tendencies the house typically falls into disrepair and can become defensively damaged. This is not covered under your property policy. So you have a home in need of repairs and no coverage.
Thanks for the reply rbuck. Your specific knowledge is helpful.

I just read my policy and I don't see anything that shows coverage would be denied for a nuisance law violation or anything like that. In fact, the text regarding personal liability coverages, exclusions, and conditions is actually pretty straight forward.

My father has few invited guests because he takes a great deal of pain medication due to his disability. That medication has been the cause of the break ins over the years, so he's very hesitant to allow people in his home. I'd say no more than 10 people currently are ever invited to the house.

My father isn't renting the home from us. There's no lease. The insurance company is aware that he lives there and is allowing the home to still be insured as a second home for us, as opposed to a rental home.

The property was not in its current condition when we bought it. Structurally the house is the same. Walls have not been moved or anything like that. The back yard, which was previously just grass, now has lots of stuff in it. Ladders, welding tanks, etc. He's actually extended the natual gas line from where it hooks up to the stove outside so he could mess with one of those outside patio heaters, which he converted from propane to natural gas. The line does have cutoff vales in it. While he's eccentric, the one thing he isn't is stupid. Likewise there is clutter inside. When his mom died we brought down the old wood stove from the house he grew up in and he put it in the house. It's not used, but I supposed there would be the question of proving that if there was a fire.

I don't believe we had to provide a statement about the property's condition but I could be misremembering. I suppose I could just be completely transparent with my insurance company about how the place is and if it's a problem take corrective action. I have the time and a box truck at my disposal to fix whatever needed to be done if so imposed by the insurance company. I would have no problem using them as the excuse to clean the place up and make sure it stays at a certain level of cleanliness and I believe that is a boundary he would respect, as opposed to me just saying I don't want him smoking in the house, etc. Would I regret it if I approached my current insurance company or would they give me the opportunity to correct whatever they considered a problem?


nwhiker

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Re: Gift house to dad to avoid his liability risk to me?
« Reply #16 on: January 23, 2018, 12:54:17 PM »

Thanks for the reply rbuck. Your specific knowledge is helpful.

I just read my policy and I don't see anything that shows coverage would be denied for a nuisance law violation or anything like that. In fact, the text regarding personal liability coverages, exclusions, and conditions is actually pretty straight forward.

My father has few invited guests because he takes a great deal of pain medication due to his disability. That medication has been the cause of the break ins over the years, so he's very hesitant to allow people in his home. I'd say no more than 10 people currently are ever invited to the house.

My father isn't renting the home from us. There's no lease. The insurance company is aware that he lives there and is allowing the home to still be insured as a second home for us, as opposed to a rental home.

The property was not in its current condition when we bought it. Structurally the house is the same. Walls have not been moved or anything like that. The back yard, which was previously just grass, now has lots of stuff in it. Ladders, welding tanks, etc. He's actually extended the natual gas line from where it hooks up to the stove outside so he could mess with one of those outside patio heaters, which he converted from propane to natural gas. The line does have cutoff vales in it. While he's eccentric, the one thing he isn't is stupid. Likewise there is clutter inside. When his mom died we brought down the old wood stove from the house he grew up in and he put it in the house. It's not used, but I supposed there would be the question of proving that if there was a fire.

I don't believe we had to provide a statement about the property's condition but I could be misremembering. I suppose I could just be completely transparent with my insurance company about how the place is and if it's a problem take corrective action. I have the time and a box truck at my disposal to fix whatever needed to be done if so imposed by the insurance company. I would have no problem using them as the excuse to clean the place up and make sure it stays at a certain level of cleanliness and I believe that is a boundary he would respect, as opposed to me just saying I don't want him smoking in the house, etc. Would I regret it if I approached my current insurance company or would they give me the opportunity to correct whatever they considered a problem?
[/quote]

Sorry about the typos but I was typing on my phone. I would not contact the insurance company unless absolutely necessary. The clutter isn't concerning until they see that a wood stove is involved and that he personally (at least that is how I read your reply) modified and added a gas line. Did he pull a permit for the gas line? Based on what you're telling me it is likely that if learned about the condition they would non-renew the policy. If I were you I would be prepared to either clean up the property or find insurance that is more restrictive but is willing to cover the home in the event that something happens to your current insurance. The red flag for me is the gas line. One doesn't have to be stupid or even necessarily careless to mess up a gas line. The littlest mistake and thinks can get interesting very fast.

I would just keep doing what your doing. In the unlikely event that your company asks to inspect the property be prepared to go and clean it up.

Dagobert

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Re: Gift house to dad to avoid his liability risk to me?
« Reply #17 on: January 23, 2018, 01:46:06 PM »
Isn't it possible to sell the house to him for 50.000 dollar and at the same time give him a mortage for that ammount. Interest accrues on the loan, no payments in the meantime.

You're not the owner anymore so no liability, you're father cant sell or loan against the house since it's your security for the mortage and no inheritance because the loan (that got bigger over time with interest, covers the potential increase in value of the property) need to be payed first.

Are regulations in the USA so different? 

Mr. Green

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Re: Gift house to dad to avoid his liability risk to me?
« Reply #18 on: January 23, 2018, 02:18:10 PM »
Isn't it possible to sell the house to him for 50.000 dollar and at the same time give him a mortage for that ammount. Interest accrues on the loan, no payments in the meantime.

You're not the owner anymore so no liability, you're father cant sell or loan against the house since it's your security for the mortage and no inheritance because the loan (that got bigger over time with interest, covers the potential increase in value of the property) need to be payed first.

Are regulations in the USA so different?
He'd have to clean the place up before a bank would even consider holding a note on the house. An appraiser comes out as part of that process and I'm pretty sure that would be game over. If we got past that hurdle, I'm doubtful that he could get a bank to loan him money based on his credit history. The mortgage on the place is just under $400 a month (including taxes and insurance) and he gets just over $700 a month from Social Security. I could look into it but I have serious reservations about its viability.

Dagobert

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Re: Gift house to dad to avoid his liability risk to me?
« Reply #19 on: January 23, 2018, 06:00:12 PM »
Isn't it possible to sell the house to him for 50.000 dollar and at the same time give him a mortage for that ammount. Interest accrues on the loan, no payments in the meantime.

You're not the owner anymore so no liability, you're father cant sell or loan against the house since it's your security for the mortage and no inheritance because the loan (that got bigger over time with interest, covers the potential increase in value of the property) need to be payed first.

Are regulations in the USA so different?
He'd have to clean the place up before a bank would even consider holding a note on the house. An appraiser comes out as part of that process and I'm pretty sure that would be game over. If we got past that hurdle, I'm doubtful that he could get a bank to loan him money based on his credit history. The mortgage on the place is just under $400 a month (including taxes and insurance) and he gets just over $700 a month from Social Security. I could look into it but I have serious reservations about its viability.

No, not a mortage from the bank. From you as the seller. A piece of paper that says, "Dad, you hereby are the owner of the house and agree to pay me the sellprice of 50.000 usd when you sell the house or at you're earliest convience. Interest of 3% a year is accrued. As a security for the loan  you give me a primairy mortage on the house (for max 125.000 with interest and costs)". Something like that but in more legal official words ofcourse. Register the loanagremeent somewhere so nobody else can get the house as collateral.

No payment from your father on the loan necessary (you don't need the money). You where prepared to give the house away so instead of having a house as an asset, getting a loan thats never repayed on you're balance sheet shouldn't be a problem.
House isn't your's anymore so no liability. You're father cant sell it or lose it to a claim, because the loan need to be repayed first. No inheritance: The house and loan cancel each other out to zero to inherit.

Finances_With_Purpose

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Re: Gift house to dad to avoid his liability risk to me?
« Reply #20 on: January 23, 2018, 06:26:30 PM »
Also check with your CPA.  Gift it and you may be subject to up to 40% tax personally on the value you gave.  That wouldn't be a fun day. 

MrUpwardlyMobile

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Re: Gift house to dad to avoid his liability risk to me?
« Reply #21 on: January 23, 2018, 06:30:30 PM »
Spend $200 and talk to an elder care lawyer.  You make a strong case for and against what you're discussing.  At any rate, get a solid umbrella policy to protect yourself.
lawyers and insurance are definitely a good idea. 

Mr. Green

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Re: Gift house to dad to avoid his liability risk to me?
« Reply #22 on: January 24, 2018, 08:03:56 AM »
I'm definitely going to talk to a lawyer but I think selling him the house might be the best way to go, provided I can give him the title to the house and record something like a deed of trust, making the loan official. This would protect my interest in the house if past or future creditors were to put a lien on the house. North Carolina has homestead protections in place that severely limit who could take the house to begin with.

If he takes ownership of the house, there are a couple positives. For one, his monthly check will go up to $750. That's the max amount for SSI disability, and it's more than his Social Security check. He stopped messing with disability when he started SS because disability takes away 1/3 of the money as unearned income since he's living in my house for free. Not a huge increase but at $700 a month any little bit helps. He's also poor enough that the county will waive the entire property tax bill.

So if I can protect my interest in the property, while slightly boosting his income, and eliminating any chance of liability to me that seems like it could be a best case scenario. The property still needs to be cleaned up a bit because he'll need to get his own homeowner's insurance.

merula

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Re: Gift house to dad to avoid his liability risk to me?
« Reply #23 on: February 15, 2018, 11:52:38 AM »
I work in insurance, specifically in Umbrella.

Does umbrella insurance cover everything, like a blanket, even further than something like homeowner's would cover? Or would the umbrella not be helpful if I was facing a situation where the insurance company said their homeowner's coverage didn't apply due to XYZ.

Typically, a personal Umbrella policy only extends the limits you have on your homeowners policy. For example, if you have a $500,000 limit for liability on your homeowners policy and bought a $1M umbrella policy, you now have coverage for claims up to $1.5M. Plus, defense expenses aren't usually included in that, so that's an additional benefit for both policies.

When you're considering your exposed assets, remember that all tax-exempt retirement accounts are protected under federal law.

I don't typically recommend umbrella policies, I don't buy one myself, but I think you should get one for a limit that would make you feel comfortable. You're worried about something that has an absolutely minuscule chance of happening, and insurance can relieve that worry. So what if umbrella insurance doesn't make financial sense from a policyholder perspective; you're buying peace of mind.

One thing that sticks out to me is that your homeowners policy probably doesn't include your dad as an insured. So, if he gets sued in his own name, is there coverage? Ask your insurance agent; there might be a way to add him. If not, I'd highly recommend buying him a rental insurance policy. (Don't ask your lawyer this question; insurance coverage is a fairly specific area of law that a family or elder care attorney is probably not familiar with, so you don't want to pay for worse advice. Plus, if your agent gives you the wrong advice, you can make a claim against their E&O insurance.)

I just read my policy and I don't see anything that shows coverage would be denied for a nuisance law violation or anything like that. In fact, the text regarding personal liability coverages, exclusions, and conditions is actually pretty straight forward.

This is pretty standard, you're not likely to see something excluded that would be completely out of your control. So they might exclude damages from you owning a dangerous breed of dog, but they wouldn't exclude damage someone else's dog caused to your property. Does that make sense?

Also, while it's true that some states will allow an insurance company to cancel a policy if they find out that there's some undesirable part of the risk, this is almost never on a retroactive basis. When it is, it's typically limited to the first 30 or 60 days of an insurance company writing the policy. To avoid this, I'd suggest sticking with the same carrier for many years. That way, if something happens, you can say "You've been writing my policy for 10 years, you never asked me for any updates and had plenty of time to come out and inspect [your policy almost certainly allows them to inspect the property] if you wanted. I'll calling the NC attorney general." And then you call your AG, say the magic words "bad faith insurance company" and you'll immediately have some big dogs on your side.

Mr. Green

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Re: Gift house to dad to avoid his liability risk to me?
« Reply #24 on: February 16, 2018, 04:53:37 PM »
I work in insurance, specifically in Umbrella.

Does umbrella insurance cover everything, like a blanket, even further than something like homeowner's would cover? Or would the umbrella not be helpful if I was facing a situation where the insurance company said their homeowner's coverage didn't apply due to XYZ.

Typically, a personal Umbrella policy only extends the limits you have on your homeowners policy. For example, if you have a $500,000 limit for liability on your homeowners policy and bought a $1M umbrella policy, you now have coverage for claims up to $1.5M. Plus, defense expenses aren't usually included in that, so that's an additional benefit for both policies.

When you're considering your exposed assets, remember that all tax-exempt retirement accounts are protected under federal law.

I don't typically recommend umbrella policies, I don't buy one myself, but I think you should get one for a limit that would make you feel comfortable. You're worried about something that has an absolutely minuscule chance of happening, and insurance can relieve that worry. So what if umbrella insurance doesn't make financial sense from a policyholder perspective; you're buying peace of mind.

One thing that sticks out to me is that your homeowners policy probably doesn't include your dad as an insured. So, if he gets sued in his own name, is there coverage? Ask your insurance agent; there might be a way to add him. If not, I'd highly recommend buying him a rental insurance policy. (Don't ask your lawyer this question; insurance coverage is a fairly specific area of law that a family or elder care attorney is probably not familiar with, so you don't want to pay for worse advice. Plus, if your agent gives you the wrong advice, you can make a claim against their E&O insurance.)

I just read my policy and I don't see anything that shows coverage would be denied for a nuisance law violation or anything like that. In fact, the text regarding personal liability coverages, exclusions, and conditions is actually pretty straight forward.

This is pretty standard, you're not likely to see something excluded that would be completely out of your control. So they might exclude damages from you owning a dangerous breed of dog, but they wouldn't exclude damage someone else's dog caused to your property. Does that make sense?

Also, while it's true that some states will allow an insurance company to cancel a policy if they find out that there's some undesirable part of the risk, this is almost never on a retroactive basis. When it is, it's typically limited to the first 30 or 60 days of an insurance company writing the policy. To avoid this, I'd suggest sticking with the same carrier for many years. That way, if something happens, you can say "You've been writing my policy for 10 years, you never asked me for any updates and had plenty of time to come out and inspect [your policy almost certainly allows them to inspect the property] if you wanted. I'll calling the NC attorney general." And then you call your AG, say the magic words "bad faith insurance company" and you'll immediately have some big dogs on your side.
The read a little bit more about the protections Federal Law gives to retirement accounts and it looks like it only applies to 401ks and other employer-sponsored retirement accounts. Only about 25% of our investments are in those types of accounts. 50% of our investments are in IRAs, and it looks like it falls to State Law regarding whether or not those accounts would be protected. While that's something, it's not overly consoling when it comes to liability.

I talked to our insurance company about my Dad having a workshop in the back yard for small projects and they mentioned renters insurance for him to put a layer of protection in place between our liability and anyone that might become injured due to his activities. We're working on getting that in place now.

As far as the insurance company potentially being able to cancel our policy retroactively, we've had the same insurance since I bought the house, over 5 years now. I have talked to them at numerous times so they're well aware of how they're writing the policy, etc. They're never asked about excess possessions outside or anything like that.

As far as our responsibility to prevent wanton injury to a trespasser or anything like that, he's not doing anything there with the intention of injuring anyone. It's just really messy. I walk through the back yard all the time, you just have to talk around a lot of crap.

We could certainly raise the liability limit on the house to $500,000 (it's 300k now) and if we get $300,000 of liability coverage for him with a renter's policy then someone would have to be suing us for more than $800,000 before we got to the point of going after our personal assets.

merula

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Re: Gift house to dad to avoid his liability risk to me?
« Reply #25 on: February 16, 2018, 09:09:26 PM »
I had read that there was $1m of federal protection for IRAs, but definitely look into this with an attorney or someone.

I want to clarify that insurance limits don't work quite that way. *If* you and your dad were both named in the same suit and the coverage and circumstances would allow sharing of limits, then it would. But if it's only one of you named in the suit, then only that person's policy applies.

Mr. Green

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Re: Gift house to dad to avoid his liability risk to me?
« Reply #26 on: February 16, 2018, 10:53:32 PM »
I had read that there was $1m of federal protection for IRAs, but definitely look into this with an attorney or someone.

I want to clarify that insurance limits don't work quite that way. *If* you and your dad were both named in the same suit and the coverage and circumstances would allow sharing of limits, then it would. But if it's only one of you named in the suit, then only that person's policy applies.
I was thinking mainly of a scenario where he would get sued but they want more than 300k, so they pull me in since I'm the landlord and "shouldn't have allowed tenant to do x,y,z." I'm sure that's not out of the realm of possibility. So That;s a pretty hefty suit though. For something close to a million I would think we're talking about a major hospitalization and lingering disability or something like that.

merula

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Re: Gift house to dad to avoid his liability risk to me?
« Reply #27 on: February 19, 2018, 08:54:49 AM »
I was thinking mainly of a scenario where he would get sued but they want more than 300k, so they pull me in since I'm the landlord and "shouldn't have allowed tenant to do x,y,z." I'm sure that's not out of the realm of possibility. So That;s a pretty hefty suit though. For something close to a million I would think we're talking about a major hospitalization and lingering disability or something like that.

Yes, that is a potential scenario. The industry term for that is "deep pockets"; plantiffs look around for a party that might have a tangential involvement to the case at hand but that would have the largest possible insurance limits.

For a real example: A child is severely injured by a pool drain at a franchised hotel.  Drain was improperly maintained, suction held child underwater, brain damage, lifelong care, etc. The true fault lay with the contractor who maintained the drain. Secondary fault lay with the owner of the hotel who hired that contractor and had a duty to ensure that the pool was safe. But where did the suit go? The big-name franchisor who had NOTHING to do with the day-to-day operations of the hotel. In fact, the franchisor had guidelines for pool maintenance that involved checks *specifically* on the item that caused the injury, that weren't followed by the franchisee. Doesn't matter; the legal system is looking at an innocent child who needs care and wants to find a way to pay for that care.

I'm telling this story for two reasons: the first is to confirm that you're right; you might be brought in solely because you have assets. The second is to point out that, regardless of the assets you have (both the contractor and the franchisee had insurance limits in the multiple millions), there's always a situation where that might not be enough. Which is why my standard advice is to just not be the "deep pockets".

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Re: Gift house to dad to avoid his liability risk to me?
« Reply #28 on: February 19, 2018, 12:25:14 PM »
Just spitballing: could you set up a trust with him as the beneficiary? The house would be the trust's primary (only) asset, and would assume all liability for the property.