One of my children and her fiancé have just closed escrow on a first home. I know each situation is different but I would love some input on a couple of things.
How have others protected the assets of one party if one of the partners is bringing more money to the table. Ownership in house is 50/50 but one provided the majority of the down payment.Monthly payments and cost of ownership are split 50/50. The mortgage broker suggested a 2nd trust deed but I’m not sure how to word it. Can someone loan money to themselves? Suggested wording. Not sure if it should read payable when house is sold out if it should be that other party pay back half the amount over time.
2nd question- we loaned them the closing costs. It has been suggested we record a 3rd trust deed for that amount. We are still trying to figure out how we want them to pay us back. Also if we file a trust deed for each of them for each of their half of the closing cost. Can we do so without charging them interest?
I’m open for other suggestions as to how to achieve the goal of asset protection.
I really recommend talking to a RE attorney in the state where they live and not a mortgage broker. If the loan is for a significant amount, you might have to charge them a reasonable minimum interest, otherwise the IRS might try to get you. The IRS does monitor property records for anything that might look like unreported gifts (i.e., transfers for less than FMV and adequate consideration) - an estate planning attorney said that.
Has the money already been co-mingled in their accounts? That could affect the answer. And is this something your kid wants – or a string you are attaching to helping out?
I definitely think your share should be documented as a loan, using A lawyer in their state.
My local attorney said there can be ways to protect the person who supplied most of the money for down payment, but state dependent.
I too have thought about this, as, in worst case scenario, my son uses all the money he inherited to,purchase a house, then a divorce happens in a few years.
Real property is different from other assets… It can get very complicated. Talk to a lawyer, not to us. 
Two of mine bought houses with their spouse. I stayed completely out of it. If they are old enough to do this they are old enough to not have parental input. If you’re worried about the money you are loaning them maybe you shouldn’t be.
I can’t imagine how I would have felt had my parents felt a need to get involved in my home purchase with my spouse
I think it’s OK to give advice, but make it clear that the decisions are up to them and you won’t be offended if they don’t listen to you. That’s what my parents and in-laws have done with us. We appreciated their wisdom, because they had all bought and sold several houses.
My son and daughter-in-law have just started looking. They have asked husband and me, and her parents to please help and give advice. They know they don’t know how to do this. We know enough to use a lawyer.
I closed on our house about a month before Mr R and I married.
The down payment was mostly mine and the mortgage payment comes out of my income. Honestly, since we were going to marry anyway, it never occurred to me to do any kind of legal stuff. Plus, we had been living together for years already so our finances were co-mingled.
I would talk to a lawyer about YOUR loaned money to them but I’d leave the other part to them… unless, of course, they were asking for advice. In which case, I’d recommend a local lawyer.
ETA: I purposely closed on the house before the wedding because I have fantastic credit and he had basically no credit. We were going to get a much better rate with just my credit score.
No co mingling. They have been very careful about that as have our other children. My D works for a divorce attorney so she well aware of what can happen down the line if funds are comingled. Our children are fortunate to have been gifted some money over the years by generous relatives. All done within IRS guidelines. My H is extremely cautious about doing all gifting within legal limits.
The loan amount isn’t substantial (under 10,000) and we are happy to just gift the money but they want to pay it back. @BunsenBurner my H thought we would need to charge interest.
We are not worried about the money we are loaning them. We can afford to not get it back. We also are not pushing our opinions on them. They have asked for help and advice at each step of the way. We have stayed out of dealing with the agent, loan broker and lender. We feel it is a learning experience for them. Our business is development and property management so we have quite a bit of first hand experience in buying and selling real estate. Our D trusts are opinion and would not have entered into a contract using her money without consulting us. While the money is hers to use as she wishes she respects that it was gifted to her over the years by relatives for her future investments not for frivolous purchases.
The key point we are trying to do is protect her down payment. The money to us isn’t a primary concern.
I’ve had many patients who gave large sums to their children for purchasing a house. Had this money been documented as a loan, they 1. Would have been paid back when kids sold that house, and
2. If the adult child must sell in the case of divorce, then the parents money is returned prior to the couple splitting the proceeds.
In one case, the daughter and grandchildren had to move to FL and live with parents, as she couldn’t afford anything else, and they no longer had spare money.
3bm103, back when I bought my first condo, I didn’t need parental money. When I read about the cost of housing in SF, Seattle, etc., I can’t imagine young adults being able to purchase without help.
Consult an attorney. There are ways to do this. My D was in a similar situation and our attorney (trust/estate attorney) set up something that worked well when D and son-in-law purchased their first house.
Double-check with your attorney because I am not an attorney and this came from an Internet link. 
Thanks. We now have some clear ideas that we are going to run by a couple of attorneys and accountants.
@bookworm I like your post #10
One additional thought.
There are fiances and fiances. By that I mean there are people who use this term to signal a committed, exclusive relationship; people who use it to mean we intend to get married at some vague not yet agreed upon time in the future; and people who use it to mean we have a fixed plan to marry within the next year or so.
(I had the startling–for me–experience of having one of my neighbors who is 65+ tell me she had gotten engaged and showing me a beautiful expensive engagement ring. When I asked when they were going to marry, she told me they were never getting married. She just wanted the ring and having the man she is living with give her the ring and introduce her to her friends as his fiancee was something she saw as proof of his commitment. I don’t get it…but I don’t have to if she’s happy.)
Be aware that some of the things that can be done to protect your D in this scenario will be rendered null and void in most states when the couple marries UNLESS there is a prenup. You should also be aware that there are certain advantages to a “tenancy by the entirety” --something only married couples can have in most states and which you may not be able to get if you protect her contribution too much. So, ask the lawyer who helps you draft whatever you agree upon whether it will still be valid after they marry if they do.
Isn’t that what pre-nups are for? If one of mine were worrying because he was marrying someone with less assets or more debt, I’d tell him to get a prenup. So much happens along the line and he/she who has “more” may have “less” at some point in the marriage so i suppose you could structure it such that if the marriage lasts more than X number of years the prenup dissolves. Plus sometimes women, especially, decide to drop out of the workforce to stay at home with kids and aren’t bringing in money and aren’t adding to the equity position which makes a prenup based on who is contributing more to the house null but if there are concerns about the durability of the marriage… I vote for a prenup.
Have they told their mortgage broker the money from you will be a loan? Most lenders demand to know what other loans the borrowers have outstanding.
I would give them money if you want, and then back away. I would not have wanted my parents or in-laws involved in any decisions around buying a house.
I bought a house shortly after DH and I started dating. When we got married, I quit-claimed the house into both our names. Did not once occur to me to ask my parents or his what they thought of that.
We have set up trusts for our Ds that are protected from a divorce. However, if the Ds get disbursements from the trust and co-mingle it with their SOs, the co-mingled funds are community property. I’m okay with that. Marriage is a partnership and shouldn’t be 100% this is mine/that is yours. We feel that the way it’s set up, it takes some thought (and for a while, a trustee) to disburse funds, so opportunity for reflection is always there.
In the situation described, sounds like a pre-nup might be in order if the participants have any concerns about inequity of proceeds later.
Honestly, I tip my hat to anyone who can cohabitate with a romantic partner and not have their funds co-mingle. I have no idea how anyone does it.
Then again, we have always had a rather large earning difference in our relationship. I have made about 5x what Mr R does since we first started dating.
“Have they told their mortgage broker the money from you will be a loan? Most lenders demand to know what other loans the borrowers have outstanding.”
We did this years ago, borrowing a portion of our down payment from my in-laws, less than $10,000. Our mortgage broker told us not to tell the bank that it was a loan, because that would effect our mortgage rate. Instead, we did it as a private loan, wrote a note just between us, which my father-in-law wrote up himself and we all signed. It was not worth worrying about the interest tax deduction because it was a low interest loan (under 3%), it was on a small amount of money, and we weren’t making all that much money to be taxed on (hence the need to borrow for a down payment).