Author Topic: Having elderly parents' house put into children's names. UPDATE pg 1  (Read 6825 times)

green daisy

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My in-laws have disclosed that they are having money troubles.  They are in their seventies and are pretty healthy.  They are not frugal by mustachian standards, but they have enough income to live on comfortably if they would just tighten up their belts a little bit, IMO.

Income is $2900/mo from social security and IRA distributions. 

They own a home worth approximately $275,000.  They have a home equity loan of approximately $100K, with a payment of $300/month.  Not sure of the terms.

I'm honestly not too sure about the specifics, and I'm not sure that I'll even be able to get the full picture.  My husband went over last week to look at everything and I only know what he's telling me.  I'm better with budgeting and finances than he is, but we felt that my presence would be embarrassing for them, so I'm trying to work behind the scenes.

He has a brother and 2 sisters, and his brother has come up with an idea that the siblings should split the home equity payment (or I guess potentially take out a new mortgage for $100k), and in exchange, the parents will put the house into their children's names.  Everyone except me (parents included) thinks this is a win/win.  I'm concerned that the parents are giving up too much with this arrangement.  Right now, they have quite a bit of equity in the home which gives them the ability to downsize, or move to a senior community.  They aren't interested in either of those things, but I think taking the options away from them altogether is a poor decision.  Also, if things become more financially difficult for the parents, for example if one of them dies resulting in less SS for the surviving parent, and they don't have their home equity anymore, I doubt that any of the siblings would be willing to give their parents money to live on.  I say this based on history of watching the family dynamics, particularly regarding the brother who has come up with this plan.  I see this as a power play on the part of the siblings to preserve their inheritance.  They are terrified that the parents will take out a reverse mortgage.

IMO, it will not be difficult to find $300/month to cut from their parents' budget.  The main problem is trying to get grown adults to control their spending.  If we were to have the home in our names, the parents would likely just see that they have an extra $300/mo to spend and would promptly buy a new car, which they do not need. 

What do you all think?  I would like to be able to articulate as many pitfalls with this plan as possible to my husband. 

« Last Edit: June 05, 2015, 08:00:30 PM by green daisy »

MDM

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Seems you are doing just fine analyzing this on your own - keep up the good work!

You have already identified what is most needed: specific details on income, spending, assets, and liabilities. 

ShoulderThingThatGoesUp

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I don't think that would solve their problem, really. Spending more than you can at that level is an issue of attitude.

TrMama

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Following.

We have a similar situation. MIL, DH and BIL jointly own a rental property. MIL manages it (poorly) and lives off the rental income. I'm terrified she will take out a loan against the house and we will end up responsible for it. In theory, BIL could do this as well, but he's better with money and I'm less concerned about him.

When we applied for a mortgage for our current house we were almost denied because of DH's name showing up on the title of this house. I forget the circumstances, but if you need credit at some point in the future, it could cause problems.

You're correct that this plan doesn't benefit your parents in law at all. It only benefits the children.

infogoon

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So, his brother wants to buy the house for $100k? So would I, sounds like a heck of a deal!

RFAAOATB

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Is this a sound transfer of wealth plan?  It's a way to build and maintain a legacy.  This sounds like a win win if everyone is mature about it.  Even then it's a better plan than a reverse mortgage.  Fuck reverse mortgages.

ice813

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This sounds like theft disguised as charity...

Insanity

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This sounds like theft disguised as charity...

Depends on who was getting the house or asset value when the elderly parents pass.

Another Reader

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No, they should not do this.

First, it's a gift and a gift tax return would have to be filed.  No federal tax would be owed would be owed, but a return would be required.

Second, the tax basis of the property is maintained.  There will likely be a taxable gain if/when the house is sold.  If the property is inherited, the basis goes to current market value.  If it is sold after it is inherited, the gain will likely be much lower.

Third, if either parent goes into a nursing facility paid by Medicaid within a few years after the gift, the value of equity in the house may be clawed back to pay for the care.

Fourth, at the time of the second parent's death, who will decide what is to be done with the house?  Are you going to go to court and force a partition sale if one sibling refuses to sell?  If one sibling moves in and doesn't pay rent, are the other siblings going to take legal action?

Fifth, are all the siblings going to be on this new mortgage?  What happens when one has a financial problem and can't pay?  Also, since it won't be owner occupied, the borrowers will pay a higher interest rate.

Bad idea for all concerned.  The equity needs to be used for the parents' needs, not the kids' needs.

ice813

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Transferring of the house to children before passing can be done, but from what I've see it is done by selling the house at near or slightly below fmv to the kids thereby giving the parents their share of the equity. The parents then pay rent back to the kids as long as they live there.

The idea of  kids"protecting" an inheritance is a little sickening because it's the parents money to spend. No one is entitled to an inheritance.

Now if the parents want to pass their equity through they can do that by paying an above market rent 😉

MandyM

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Re: Having elderly parents' house put into children's names. Yay or nay?
« Reply #10 on: May 28, 2015, 12:22:43 PM »
So, his brother wants to buy the house for $100k? So would I, sounds like a heck of a deal!

+1

You're correct that this plan doesn't benefit your parents in law at all. It only benefits the children.

It benefits the parents by allowing them to stick their head in the sand regarding their finances for a bit longer.

I find it somewhat disgusting that you foresee the four siblings taking the house at a $175K profit and then likely refusing future help. If they intend to say no in the future, they need to say no now. Giving the parents an easy way out does not justify stealing from them.

Also - you need to discuss with your husband the issues of owning this house with three others. Every decision on it will have to be a group decision. Repairs, upkeep, eventually selling, how much to list for, deciding whether an offer is high enough, etc. IMO, it will be a nightmare from the moment the papers are signed until the day it sells.

NorCal

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Re: Having elderly parents' house put into children's names. Yay or nay?
« Reply #11 on: May 28, 2015, 12:25:20 PM »
Sounds like a bad idea.  I've seen these inter-family financial arrangements blow up too many times.

It sounds great now.

What happens when one of the kids loses a job and runs into financial trouble?  Or one sibling begins urging the parents (even with the best intentions) of moving to a senior community earlier than someone else is comfortable with?

Life changes.  Be ready for that.

green daisy

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Re: Having elderly parents' house put into children's names. Yay or nay?
« Reply #12 on: May 28, 2015, 01:29:08 PM »
Thank you for all the advice.  Things are going to get bumpy.  All parties are on board, except for possibly my husband who is on the fence.  I have a feeling he'll cave to peer pressure.  Is there any way this can bite me in the butt personally?  I don't like this at all.  I brought up a situation of what would happen if my husband died before his parents.  I would then own 1/4 house with his siblings, which I would want to sell my share of b/c I have no interest in owning a house with his siblings.   

jwright

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Re: Having elderly parents' house put into children's names. Yay or nay?
« Reply #13 on: May 28, 2015, 01:38:18 PM »
I second the concern that this would be a gift, which could be a taxable event and/or have a filing requirement.  Maybe not if it is split between all the children and their spouses, but that is something to think about. 

MandyM

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Re: Having elderly parents' house put into children's names. Yay or nay?
« Reply #14 on: May 28, 2015, 01:49:16 PM »
he'll cave to peer pressure.   

This is a big reason to NOT do this.

Another Reader

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Re: Having elderly parents' house put into children's names. Yay or nay?
« Reply #15 on: May 28, 2015, 01:50:26 PM »
You raise another issue.  If only the siblings are on title and on the mortgage, what happens to their share if one of them dies?  If only the siblings take title and they do it as joint tenants, you could be out completely if something happened to your husband.  Or, if he died, and Medicaid clawed back the equity, you could have to come up with the money to pay Medicaid.

In your shoes, I would visit an attorney with some expertise in real estate and elder law issues with DH.    He may have his eyes opened when he understands the potential pitfalls of doing this.

Catbert

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Re: Having elderly parents' house put into children's names. Yay or nay?
« Reply #16 on: May 28, 2015, 02:35:48 PM »
No, they should not do this.

First, it's a gift and a gift tax return would have to be filed.  No federal tax would be owed would be owed, but a return would be required.

Second, the tax basis of the property is maintained.  There will likely be a taxable gain if/when the house is sold.  If the property is inherited, the basis goes to current market value.  If it is sold after it is inherited, the gain will likely be much lower.

Third, if either parent goes into a nursing facility paid by Medicaid within a few years after the gift, the value of equity in the house may be clawed back to pay for the care.

Fourth, at the time of the second parent's death, who will decide what is to be done with the house?  Are you going to go to court and force a partition sale if one sibling refuses to sell?  If one sibling moves in and doesn't pay rent, are the other siblings going to take legal action?

Fifth, are all the siblings going to be on this new mortgage?  What happens when one has a financial problem and can't pay?  Also, since it won't be owner occupied, the borrowers will pay a higher interest rate.

Bad idea for all concerned.  The equity needs to be used for the parents' needs, not the kids' needs.

Another Reader is spot on.  A 6th reason, what will happen if one of the siblings gets divorced or sued beyond insurance coverage.  The house equity is an asset that will be up for grabs. 
 

chubbybunny

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Re: Having elderly parents' house put into children's names. Yay or nay?
« Reply #17 on: May 28, 2015, 02:46:45 PM »
+1 one for getting an attorney to look at this deal.  You can always ask your good questions with the siblings and parents in the room.  Or at least write them down and have DH hand it to the attorney and let them all hear their answer. 

I purchased a house from a family friend at a discount (value was $140k and I paid $90k) and then rented it back to her.  It was a win-win for us.  She was able to travel with the extra cash, and I guaranteed her a certain (below-market) rent for as long as she lived there.  She lived another 5 years in the house, then only a short time more in assisted living.  The attorney added all kinds of stuff I didn't think of, like not allowing any sublets or roommates.

What's funny is even with this positive experience, I would never do this with family.  My mother went through a similar cash crisis, and after years of going into debt we finally convinced her to sell her house.  She wanted me to give her the same deal, buy her house and rent it back to her, but I absolutely refused.  I love her, but it was a different situation (throwing good money after bad). The equity was JUST enough to pay off her bills (medical and credit card).  Now she rents a room.  It's a far cry from the 4 bed/2 bath she was used to, but it's actually within her means now. 

ltt

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Re: Having elderly parents' house put into children's names. Yay or nay?
« Reply #18 on: May 28, 2015, 02:59:04 PM »
Yes, this can bite you in the butt.  My father put my name onto his house as a joint tenant.  He was very clear to me that I "keep my nose clean" and make darn sure that we filed and paid our taxes with the IRS because he didn't want the IRS coming after his house and filing a lien if we didn't file our taxes.  If you don't know your husbands' siblings tax situation and know whether they are filing them, behind in payments, etc., I would not get involved in this--no how, no way.  The brother-in-law already sounds like a scamster.  Ugh.

Capsu78

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Re: Having elderly parents' house put into children's names. Yay or nay?
« Reply #19 on: May 28, 2015, 03:53:15 PM »
I am with everyone who feels this arrangement is just too squirrlly and fraught with uncertainty and lose ends...  A strong "what if" analysis is in order and any one of the participants who doesn't agree needs to be carefully watched.

green daisy

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Re: Having elderly parents' house put into children's names. Yay or nay?
« Reply #20 on: May 28, 2015, 09:42:05 PM »
Thanks again, everyone.  I'm now 100% firm in my position that not only is this a bad idea, it doesn't even fix the problem. 

I will be watching with interest to see how my husband handles this challenge.  We spent several years in marriage counseling because of issues with his family, and we agreed that there would be no mixing money with family (namely the brother) after having been burned before.  They are going to be meeting with a lawyer to discuss pros and cons.  Hopefully the lawyer squashes it. 

Another Reader

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Re: Having elderly parents' house put into children's names. Yay or nay?
« Reply #21 on: May 28, 2015, 10:16:30 PM »
In your shoes, I would attend the meeting with the attorney if spouses are invited.  Not going because it might make his parents uncomfortable is not a reason to stay away.  You can state your position if the attorney doesn't kill the idea up front.  It might make the next family get-together a little uncomfortable, but your family needs to come first.

justplucky

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Re: Having elderly parents' house put into children's names. Yay or nay?
« Reply #22 on: May 29, 2015, 11:47:48 AM »
If they refuse to abandon this idea, can you and your husband just opt out of the scheme entirely? Meaning you waive any part of an inheritance that would come from the house. It may be worth it to avoid being part of this circus.

green daisy

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Re: Having elderly parents' house put into children's names. Yay or nay?
« Reply #23 on: June 05, 2015, 08:00:01 PM »
Update.  The siblings consulted with a lawyer who told them that this was a bad idea and that they should not do it.  He gave them many reasons such as the parents needing the equity in the home to live off of, a sibling declaring bankruptcy or having an IRS lien on the property, a divorce or death of a sibling, taking options away from the parents, parents being poorly cared for in a Medicaid nursing home because they couldn't afford a better one without the home equity.  Ultimately the deciding factor was that the attorney explained about a large capital gains tax they would have to pay when they sold the house because of how little the parents paid for the house 30 years ago.  So they left the meeting and decided not to do it (notice that no one is planning on helping that parents at all now that there isn't a house in it for them anymore).  However, today they remembered about the expensive addition/remodel the parents did which cost more than the house is currently worth.  They called the attorney and he said that the capital gains tax would no longer be an issue although still advising of all the other concerns with this plan.  So.....now they want to do it again.

Did I mention that the one brother owes the parents $25k that he hasn't paid back?  In fact, when the parents were in a tough spot about 5 years ago, they asked him to start repaying the loan and he blew up at them and refused to speak to them for several weeks. 

I am so disgusted by this.  I spoke to the parents tonight and told them why this is a bad idea and why they shouldn't do it.  I explained ways they can cut their budget.  If my husband goes along with this plan to steal his parents' house, I might divorce him.  I've been on the fence about it for a few years.  We agreed a few years ago that he would not get involved with his brother and money ever again after having it go badly for us many times before to the tune of tens of thousands of dollars.  This may push me over the edge.  These people make me sick. 

tonysemail

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Re: Having elderly parents' house put into children's names. UPDATE pg 1
« Reply #24 on: June 05, 2015, 08:15:47 PM »
I faced a similar situation last year and ran from it as fast as I could. 

Is your DH a mustachian?
I re-read the post on MMM's biggest mistake yesterday and its very relevant.   The red flags are all there in your situation too.

If DH goes forward with this bad idea, then one important safety valve to consider is an agreement to go to arbitration to resolve any disputes.

green daisy

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Re: Having elderly parents' house put into children's names. UPDATE pg 1
« Reply #25 on: June 05, 2015, 08:25:41 PM »
I faced a similar situation last year and ran from it as fast as I could. 

Is your DH a mustachian?
I re-read the post on MMM's biggest mistake yesterday and its very relevant.   The red flags are all there in your situation too.

If DH goes forward with this bad idea, then one important safety valve to consider is an agreement to go to arbitration to resolve any disputes.

He's not a mustachian.  Not the worst spender either though.  The arbitration advice is excellent. 

Cathy

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Re: Having elderly parents' house put into children's names. UPDATE pg 1
« Reply #26 on: June 05, 2015, 08:38:23 PM »
I'm concerned that the parents are giving up too much with this arrangement.

Indeed.

This thread reminds me of the case of Hajduk v. Gabourie, 2014 ABQB 177, which concerns an almost identical transaction as the one proposed in this thread, other than that it was between friends rather than family members. Several years after entering into the transaction, the former owner of the house realised that he had entered into an extremely bad deal for himself, and filed a lawsuit in an attempt to unwind the agreement. Although the judge was obviously sympathetic to somebody who had entered into such a patently poor deal, the claims were legally without merit so the judge had to dismiss the case.

A transaction like this could be extremely destructive to the family in the future when the parents realise they've entered into a very unfavourable (for them) arrangement. Even if they never realise that, you have to live with taking advantage of them.
« Last Edit: June 05, 2015, 08:44:48 PM by Cathy »

MDM

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Re: Having elderly parents' house put into children's names. UPDATE pg 1
« Reply #27 on: June 05, 2015, 08:40:04 PM »
The arbitration advice is excellent.
Although that is a good thing to consider in general, don't let yourself rationalize a terrible idea by thinking "arbitration will handle things" if when problems occur.

The time to hold the line is now, for both your and the parents' sakes.  You know this - just reminding you.

green daisy

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Re: Having elderly parents' house put into children's names. UPDATE pg 1
« Reply #28 on: June 05, 2015, 08:47:45 PM »
The arbitration advice is excellent.
Although that is a good thing to consider in general, don't let yourself rationalize a terrible idea by thinking "arbitration will handle things" if when problems occur.

The time to hold the line is now, for both your and the parents' sakes.  You know this - just reminding you.

Agreed.  I will never be supportive of this plan.  I'm thinking along the lines of "I will not stay married to you because you have a long history of x, y, z.  In addition, you promised you would not get involved financially with your brother ever again.  You are breaking that promise, and stealing your parents house.  I'm walking away from this train wreck.  By the way, if you go through with this, you may want to consider a clause where arbitration will be required to handle any future disputes.  Because in a few years, your brother will be kicking your parents out of their own home and seeking to sell it to pocket his share of the equity."

Cathy

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Re: Having elderly parents' house put into children's names. UPDATE pg 1
« Reply #29 on: June 05, 2015, 09:03:05 PM »
Please understand that the insertion of an arbitration clause will not make an unfair agreement any more fair. An arbitration clause doesn't relieve the parties of the duty to draft a contract containing their agreement. An arbitrator will merely apply the terms of the contract as dictated by the applicable law. An arbitrator will not and cannot rewrite the contract to make it more fair. An arbitrator who makes a decision that goes beyond the terms of the contract will have "exceeded their powers", and the Court may vacate the arbitrator's decision. See 9 USC 10(a)(4) and analogous state laws.

Suggesting an arbitration clause as a substitute for having a fair contract is really misunderstanding the nature of such a clause.

An arbitration clause might make disputes less expense, as they won't require recourse to the courts (so long as the arbitrator stays within his powers and doesn't purport to rewrite the contract...), but the outcomes won't be any more fair.

Bottom line: An arbitration clause provides a different forum but not a different law. (The parties to a contract can generally stipulate what law will apply, but that is true regardless of the forum where disputes will be heard.)
« Last Edit: June 05, 2015, 09:16:12 PM by Cathy »

green daisy

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Re: Having elderly parents' house put into children's names. UPDATE pg 1
« Reply #30 on: June 05, 2015, 09:17:59 PM »
Please understand that the insertion of an arbitration clause will not make an unfair agreement any more fair. An arbitration clause doesn't relieve the parties of the duty to draft a contract containing their agreement. An arbitrator will merely apply the terms of the contract as dictated by the applicable law. An arbitrator will not and cannot rewrite the contract to make it more fair. An arbitrator who makes a decision that goes beyond the terms of the contract will have "exceeded their powers", and the Court may vacate the arbitrator's decision. See 9 USC 10(a)(4) and analogous state laws.

Suggesting an arbitration clause as a substitute for having a fair contract is really misunderstanding the nature of such a clause.

An arbitration clause might make disputes less expense, as they won't require recourse to the courts (so long as the arbitrator stays within his powers and doesn't purport to rewrite the contract...), but the outcomes won't be any more fair.

Bottom line: An arbitration clause provides a different forum but not a different law.

Ah, ok.  I wasn't understanding what arbitration is.  I thought it was a situation where if there was a dispute, for example if 2 of the siblings want to sell and 2 don't, they would bring their arguments before a neutral arbitrator who would make a decision.  Thanks for clarifying. 

Cathy

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Re: Having elderly parents' house put into children's names. UPDATE pg 1
« Reply #31 on: June 05, 2015, 09:30:10 PM »
Ah, ok.  I wasn't understanding what arbitration is.  I thought it was a situation where if there was a dispute, for example if 2 of the siblings want to sell and 2 don't, they would bring their arguments before a neutral arbitrator who would make a decision.  Thanks for clarifying.

An arbitrator wouldn't have jurisdiction to opine on that issue unless the contract actually brings it within his jurisdiction. What you're really envisioning here is some form of clause that says that the house may only be sold if it's "fair" to sell it. If enforceable, that clause would then provide the legal basis for that issue to be adjudicated, whether by a court or arbitrator. I won't discuss here whether such a fairness clause would be enforceable. My point is just that "add an arbitration clause" isn't a panacea; the parties still need to think through the agreement in detail.

ShoulderThingThatGoesUp

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Re: Having elderly parents' house put into children's names. UPDATE pg 1
« Reply #32 on: June 06, 2015, 08:11:28 PM »
Have you reminded your husband of his promise?