Like I said in the first post, I know we need a lawyer, but I still appreciate the ideas and the basis for starting a conversation with an attorney that I would get from y’all.
I thought if you gift over a certain amount, somewhere around 15K per person, while living, you would trigger taxes. But I’m not sure if each parent can gift that amount each year.
^ each parent can give that amount to each spouse. I think the limit is 13 Ka year. Between my husband and I our parents can gift us 52000 a year untaxed.
What is the plan for your parents paying maintenance? From my experience, far too often I hear elderly parents and in-laws say that the contractor recommended x fix, but they refuse it and take the fix that will only last 3 years because it is cheaper. Then the heirs need to make the x fix to sell the house.
Since you own rental property you should be able to calculate a reasonable amount to charge for maintenance. This will be far less headaches later on.
My dad is a jack of all trades. He METICULOUSLY maintainss not only his house, but our house and volunteers to take care of a couple of elderly and limited income neighbors homes. I trust them in this area completely. They will not balk about paying a contractor when the time comes that he is unable and if they did, they’ve given my sister and I far too much cash and free labor for either of us do anything other than return the favor.
My sisters house was gutted down to studs and remodeled right before she bought it a couple of years ago. Literally everything in her house is new including electrical and plumbing and roof. The only thing not replaced was the siding and it looks great now. I expect any maintenance to be relatively minor for the next 10 years or so
This is why they think it would be stupid for sister to sell it
How old are your parents?
My primary concerns would be Medicaid eligibility (should it ever be needed) and being financially enmeshed with not only my parents but my sibling and his/her spouse.
Is your sister married? What happens if one of you experience a divorce while in this co-ownership scenario?
I admire what you and your sister want to do for your parents, but it sounds potentially messy and complicated imo.
(It’s good that you recognize the need for legal help should you go forward)
Gifting limit without having to file is $14k per donor to donee per calendar year.
SFMom…sister and I are (or will be) married, but all contracts/mortgages involving either one of us with respect to this house will be only in our or parents names. I have money theyve already gifted so far in my name only and according to attorney, it is protected in event of divorce.
Parents are both 71.
We are aware of the look back period for Medicaid and are OK with that. I think the period is 5 years. We are completely OK with the possibility that medicaid might be able to retrieve what they will get anyway if parents’ current situation does not change.
We are all practical people and none of us would consider any kind of.joint ownership situation without every forseeable possibility spelled.out in a contract.
Even if you keep the gifts separate, to keep the house co-owned with your parents or sister separate, you’ll need to be careful to not use marital property to make mortgage payments or pay for improvement to the house.
^ yep. IF I am involved, all that money would come from my individual account.
Have your parents ever talked about buying your sisters home? If not you might end up with out realizing it guilt them into moving to a house that they really would rather not move to. If your parents would be better in a one level house are you sure that there isn’t a better house for them?
My parents are weird. They won’t shell out any more money no matter what. They paid their house off in their late 40s and their kind of frugalness and simple needs thinking allowed them to retire completly in their early 50s, so I can’t fault them too much.
This is a great home in every way. The ONLY reason we think they might be open to the idea is that they know and love the house and neighborhood. My mom has said many times that she would lI’ve to live there, although at that time there wasn’t even the hint of an option to do so. My dad frequently comments that he is jealous of the shop and storage space and has even taken over a significant amount of the storage already
There would be a lot less hassle involved with this move than any other possible move. They could take months to transition completely is they wanted to.
And trust me when I tell you there will not be any guilting my parents into anything. They can’t be manipulated like that nor would we try. They are completely healthy, independent and of sound mind.
But, if we figure out a realistic scenario or two and make a solid proposal to them, we might remove enough of the hassle to which they are averse, that they would actually go for it, though their initial reaction will be to blow the idea off as ridiculous. But I really think if we just step back at that point and let them cogitate on the whole idea for awhile, they could decide that it makes sense.
I’m very confused by this scenario. What is the primary motivation for the plan? Your sister’s desire to get $40,000 in cash?
No. To give my parents the option and motivation to move into a MUCH better home. And by motivation, I don’t mean talking them into it. I mean removing many of the hassles they’ve said they won’t mess with in order to move. They don’t want to shop for a house, or have to move out of one and into another on anyone else’s schedule.
My sister has other options for the 40K to remodel the kitchen in her other house if it doesn’t make sense to transfer cash to her. Until we started talking about this option, it was her plan to use proceeds from the sale of her house to do that. But she has plenty of other investments she can sell off if she has too–she’d just rather not do that since she’s getting a good return on her other investments.
Frankly, it seems to me that the biggest problem you will have in making this work is that you and your sister will be subsidizing your parent’s living expenses unless they paid a pro rata rent based on your and your sister’s ownership shares. From the way you describe your parents, it sounds like they would be unwilling (1) to accept the subsidy; or, alternatively, (2) to incur the additional expense of rent.
To eliminate the subsidy element without requiring ongoing payments, their ownership share would have to be lower than the fair market value based on the cash they put in. The difference between the initial value of their share and the cash they invested would, in effect, cover the pro rata share of the “rent” to the non-resident owners (ie you and your sister).
To tell you the truth, given the fixed parameters you’ve given us – parents don’t put in any additional funds beyond the current value of the house and they don’t want to accept any subsidy from you – I would not agree to this plan if I were your parents.
Among other things, there are all sorts of protections that apply to assets that are tied up in primary residences that do not apply to investment property. If I were in your parents’ shoes, I would be worried about the effects of joint ownership on those protections. I have no idea of how that would all play out but I would be loathe to leave a house I owned free and clear to go into a joint ownership situation where, to avoid subsidy, my percentage of ownership interest would have to be below the market value of that interest based on the cash I put in.
I seriously think the only way for this to work would be for them to buy your sister’s property themselves, without you and your sister pitching in. That’s what you should be talking them into.
Alternatively, maybe your sister can sell it to them with an payment free mortgage, with interest accruing and the debt to be paid on from the estate of the second parent to die. I just made that up, not sure how it would be structured in practice.
I think my parents would be open to the “subsidy”, because one of us (probably sister) would be a fractional owner–i.e.: they own their 1/2 free and clear. Sister makes payments on her half. That’s why I wondered upthread: what if they give her 1/2 of the current value of the house (roughly $87k), can she quit claim half ownership to them? If so, it seems that would be the simplest way to proceed.
My sister would keep $40K, and use balance to refinance her current $100K mortgage down to $53K. Principal and interest payments would be $268/month then.
Yeah but normally a fractional owner would be getting income from a property they owned, so it is clearly a subsidy. If your sister purchased half of a property as an investment with a stranger, she would be getting half the rental value as income. I wouldn’t accept that kind of subsidy from my kid.
The “income” would be that that parents pay the taxes, insurance and maintainence. My sister gets the tax write off, and 1/2 of their equity upon their passing–so deferred income. Does that make sense?
Fair market rent on the place is roughly $1200. Taxes and insurance rougly $3500/year.–
FWIW: we currently charge our tenants $200/month under fair market value because they are fantastic tenants in every way–they take fantastic care of the house and yard and manage most minor repairs by themselves (they know they are getting a good deal) and after our experience with our previous tenant, we realized it was in our best long term interest to eat the extra couple hundred a month in order to have our pick of cream of the crop tenants who were willing to sign 2 year leases both times.
My sister would never ever consider being a landlord unless it was my parents to whom she was “renting”. Not her thing.
Yep, that makes sense.
I would definitely think about the asset protection issue – primary residences are often protected from judgments, etc. I’m not sure of the details. I don’t know what happens when there are two owners. Just something to think about.
Just thinking about this, I could see why a very financially conservative older couple might not want to do this. They would kind of be betting that life would not throw curveballs at your sister. Even the most financially stable people can get into hot water quickly through no fault of their own, and if that happened to your sister while she was a co-owner, it could put your parents in a difficult position.
In other words, there could be a financial situation in which your sister would need to cash out of her share while your parents were still living in the house.