real estate questions and your thoughts - you guys are smaaaht! not like everyone says!

Sarry - just watched Godfather 2 for the first time.

Aaaaaaaaaaaaanyhoo, I'm considering very seriously buying my mom's house/childhood home.

Fair market value minus my "cut". Her plan was to sell it anyway and keep half of the proceeds. Then split the other half between my brother and I. Technically. 75% of fmv.

My plan is to let her stay there as the house is too large for me anyway. She originally wanted to sell and get an apartment, but I feel she'd end up worse off financially than she is now in a paid for house. But she can't really take care of the house on her own. I can, and I see no reason for her to move out anyway.

I would end up with an ok house in a good location for a great price. Mom's expenses would go down and she wouldn't lose any quality of life. Brother would get some money out of the deal.

My expenses would likely not change much, if at all.

There would be no house related complications with her estate when she passes on.

What could possibly go wrong? What alternatives can the masses see that would work out better? You folks are smart and will be able to shoot this idea full of holes as well as make constructive suggestions.

Any advice for or against this "plan", or ways to keep it as uncomplicated as possible, better ideas and all that are most welcome.

Thanks again

What is FMV? Will the house transaction muddy the waters in terms of estate taxes at some point?

Does the house currently benefit from a "homestead" tax exemption?

It may be useful to consider having a lawyer tell you about trusts.

I've seen people sell their houses to relatives, but keep it in a life estate. They can live there as long as they are able. I'm not sure how that works out with homestead exemption. I suspect you need to contact a real estate attorney or one that deals with estate planning.

I'm confused on how if she currently has no mortgage how the sale will help out her expenses other than the property taxes which I'm guessing will be yours and not hers. Are you talking about upkeep/maintenance costs?

Also, not sure how this would not affect your expenses much if at all. Someone has to pay something here.

Sounds like a nice thing to do to take care of your mom. If the house is too big for you why is it not too big for your mother?

The other concern I would have is to make sure your brother is ok with this arrangement. I guess he would get some cash now, but no longer have any claim in the future to the house. Will he understand that the house is now yours and not his? Will he expect to move in and live there when your mom no longer lives there for example? I'd make sure he is on board with it before proceeding.

My father and brother took co-ownership of their father's house several years before he passed on. This kept the house out of Medicaid's hands when grandpa ended up needing end-of-life care. When he passed (this spring, at the tender age of 99) my dad and uncle sold the house and split the proceeds 50/50.

If the house had stayed in grandpa's name, he'd have been forced to sell it to pay for Medical expenses before Medicaid kicked in.

Talk to a tax preparer/ attorney before doing anything, of course, but the general understanding is, it's best to transfer as many assets to younger generations as soon as possible.

No homestead exemptions or whatnot.

The plan is to get a couple assessments to determine the market value of the house as-is. From there, set up the mortgage and legal sale of the house to me.

Seeeeeeeeeeeeeems simple enough.

My mom was made a co-owner on her dad's house and on his passing it simply became hers, no taxes, no estate BS, etc.

In reply to akamcfly:

Again, check with some experts in this. You may not have to "purchase" the house, since you're related. Purchasing the home would involve paying all sorts of taxes and fees (even though there's no agents involved) that may not need to be.

Clear understanding of what's going on and transparency is key between all parties. Since you have one sibling, setting the property up as joint ownership with you and your brother with tenancy by your mom (rent free) might be the best option.

In reply to volvoclearinghouse:

That would work for 99% of situations, but the big but here is my brother could really really use his "cut" at the moment. This would free up some capital for him sooner than later. I would get a good deal on the house, mom would have money and can stay in the house. I would be living there too, so it would be my home and not an investment property. I have too much stuff to live in an apartment any more (had a house before I moved here). It would be nice to resurrect Dad's work shop again too. That would keep me busy and sane. :)

spitfirebill wrote: I've seen people sell their houses to relatives, but keep it in a life estate. They can live there as long as they are able. I'm not sure how that works out with homestead exemption. I suspect you need to contact a real estate attorney or one that deals with estate planning.

Life estates can be a big problem, though how they work varies from state to state. My wife's mom passed recently, leaving a life estate to her boyfriend, who also owned half the house they lived in. Now, if he were to move out or be incapacitated, the damned thing could sit there empty and rotting until he died.

akamcfly wrote: In reply to volvoclearinghouse: That would work for 99% of situations, but the big but here is my brother could really really use his "cut" at the moment. This would free up some capital for him sooner than later. I would get a good deal on the house, mom would have money and can stay in the house. I would be living there too, so it would be my home and not an investment property. I have too much stuff to live in an apartment any more (had a house before I moved here). It would be nice to resurrect Dad's work shop again too. That would keep me busy and sane. :)

Gotcha. Sure, I understand not every decision can be made on the best dollars-and-cents basis. However, you have to be realistic. I don't know your brother, or his situation, but if he "needs" the money...is it because he had a one time, life emergency, etc, or is it because he's bad with money? If it's the latter, he might squander the "inheritance" from the house sale and end up in the same situation. Then when your mom passes, he'll be first in line wanting half of "his inheritance".

Sorry to be so bitter and jaded but, as the saying goes, I've seen it. Spouses can make things tricky, too. Divorce happens, and then who owns what?

Passing on assets goes beyond real property, of course. Your mom can make a gift of up to $14k per year to each of you, tax free. That "gift" could also be put into, say, a retirement fund for either of you.

There are annual gifts and one time gifts. Check and see what those are. Also do the math and figure out what it costs to do the deal conventionally. Remember to factor in taxes on any of the monry that may be considered income or capital gains. One percent here and one percent there and now we're talking real money. Additionally, if you don't have the money in cash then you're now paying a bank to finance money to your family.
Depending on how much your brother 'needs' you could be giving a significant portion of that to the people and governments involved in the transaction.
It may be better (if allowed legally) to be gifted the house and buy out your brother's portion.

If the home has increased in value considerably since it was originally purchased, using a quit claim deed will get you the home but will really burden you the receiver with capital gains taxes if you ever attempt to sell it.

She can give a little over $14K annually to either or both of you without tax penalty. Married? Another 14k to the spouse.

I'd think that if you worked out a 30 year mortgage and have her carry the loan. You could make the monthly payments to her and she would have a slightly more difficult IRS bill. But you could then make the payments and have her give you that 14k back if she wanted to.

It was back in 1976 in SW PA, but my family did this.

My brother and his family had moved back home with my mother temporarily because of a job change. My mother who was 70 at the time decided that she did not want the expenses to take care of the house and my brother needed some help to find a home for his family.

She had the house appraised and sold the house to my brother for half the appraised value. She had my brother sign a life estate agreement that she could live in the house as long as she was able. So they lived there together until she died at age 86.

Best part for me was that she gave me the money he paid her for the house so that I could buy a house for myself.

IIRC, the only taxes that were paid were the transfer taxes paid by my brother.

volvoclearinghouse wrote: I don't know your brother, or his situation, but if he "needs" the money...is it because he had a one time, life emergency, etc, or is it because he's bad with money? If it's the latter, he might squander the "inheritance" from the house sale and end up in the same situation. Then when your mom passes, he'll be first in line wanting half of "his inheritance".

He's bad with money. Will he squander what he gets? I imagine some will go towards magic beans and say something hats.

That being said, The idea of selling the house to me will be to avoid a situation like you describe when she passes away. He gets his 25%, my 25% goes on the principle of the house. The other 50% goes to mom. If it's all spent by the time she passes away (I sure hope so), that will be that. He'll have no say in what happens to the house or any portion of it, because it will no longer belong to Mom.

Will he try? He might. He'll have no legal claim to it though.

akamcfly wrote:

volvoclearinghouse wrote: I don't know your brother, or his situation, but if he "needs" the money...is it because he had a one time, life emergency, etc, or is it because he's bad with money? If it's the latter, he might squander the "inheritance" from the house sale and end up in the same situation. Then when your mom passes, he'll be first in line wanting half of "his inheritance".

He's bad with money. Will he squander what he gets? I imagine some will go towards magic beans and say something hats. That being said, The idea of selling the house to me will be to avoid a situation like you describe when she passes away. He gets his 25%, my 25% goes on the principle of the house. The other 50% goes to mom. If it's all spent by the time she passes away (I sure hope so), that will be that. He'll have no say in what happens to the house or any portion of it, because it will no longer belong to Mom. Will he try? He might. He'll have no legal claim to it though.

The only thingi would worry about is your brother trying to inflate the value of the house so he gets a bigger cut. I could see several people i know doing that to their family.

In reply to akamcfly:

I thought about what I'd typed and felt a little bad; I didn't mean to be casting aspersions about your family whom I've never met. And now I almost feel worse that I was apparently correct in my initial hunch.

While he may not necessarily have "legal" rights, situations like this can make the death of a close family member all the more painful when the squabbles start. I can speak to this because I have seen it first hand- in my family and with friends and co-workers. Another thing to take into consideration is the will and all that that entails- Executor, etc. She needs to have this all taken care of if she doesn't already. And make sure the Executor is someone who's trustworthy and has their act together, and is OK with dealing with lawyers and paperwork and all that E36 M3.

Getting back to the original post, Medicaid has (IIRC) a 5 year look back. So if at least part of your intent is to shield family assets from Medicaid, you really have to be forward-thinking about it. Granted, no one can foresee the future, which makes it all the more important to take care of stuff like this sooner rather than later.

If you're really concerned about the welfare of your brother, perhaps look into some sort of trust or something for him. Or set up an IRA or Roth IRA for his retirement. Basically, get him a supplemental income without giving him a wad of cash to blow. Imagine how disheartened you and your mom would feel to go through all this and then see him rolling up the following week in a brand new luxury SUV.

In reply to volvoclearinghouse:

Will and power of attorney are all buttoned up and and have been since before my dad passed away. Everything is explicitly set out and lawyer-proofed.

Mom wanted to set something up like that for my brother, or cover things as the need arises. He's having none of that - "why should he get the whole amount and I have to beg for scraps?" Thing is I agree.

I know for sure it will be gone in a hurry, but he's older than I am and should be allowed to steer his own ship.

akamcfly wrote: In reply to volvoclearinghouse: Will and power of attorney are all buttoned up and and have been since before my dad passed away. Everything is explicitly set out and lawyer-proofed. Mom wanted to set something up like that for my brother, or cover things as the need arises. He's having none of that - "why should he get the whole amount and I have to beg for scraps?" Thing is I agree. I know for sure it will be gone in a hurry, but he's older than I am and should be allowed to steer his own ship.

This is one area that is almost never discussed in financial planning. Everyone talks about saving money for major life events, but there's very little discussion ever about wealth transfer. I think part of this is generational, and part due to the sea change in thought in this country. People are more self-centered. You see things like "can't spend it when your dead!" and the like.

Most families (with some exceptions) do not get rich in one generation. Wealth - real wealth - is an accumulation over generations. The trouble is, its extraordinarily difficult to keep everyone in line with this mentality. One spendthrift here, a few divorces there, and all that money, all that saving, is scattered to the winds.

The goal isn't to become the next Vanderbilts here. But the goal should be to take what your grandparents have saved and build on it. Don't look at a $100,000 inheritance as something to blow on stuff. Look at it and say, my parents left me this, I want to leave my kids $500,000. Et cetera.

When my daughter was born, my parents opened up a retirement account for her. Birthday presents go right into that account.

The concept of wealth needs to shift. Money used to represent security. Now it represents the amount of E36 M3 you can buy with it. They say the middle class is disappearing. They have only themselves to blame for it.

Your brother may be older, but age is meaningless in this case. Your mom is right. Older Brother (OB) needs to be on a budget. What happens when he spends through this money? Then he comes begging to mom, or you, for more. When do you say "no"?

He's already making waves about the money.

Maybe I should just walk away from this idea...

akamcfly wrote: He's already making waves about the money. Maybe I should just walk away from this idea...

Don't let his inability to manage money make you walk away.

If this deal works for you then it is a deal between you and your mother - not your brother. Spend a few bucks on a lawyer to make sure the deal is tight.

Perhaps this might even be a good opening to help him help himself when it comes to money.

Above all, remember: he is your brother. Make sure everything you do is fair to both he and you. You only get one brother.