Deeded Togetherness. Or Who Really Owns This Place?

[BUM]

Many previous topics have hashed and re-hashed the pros and cons of living with or near your grown children and grandkids. No thread that I can think of has ever dealt with the how-to issues of commingling property and finances.

Heres the idea.

Right now son and DIL are living in a tiny house we own. They pay all expenses but no rent. Been there for 2 years and they love it but they wish that they were gaining equity. We talked about selling it to them and that might happen.

However... DW and I live in a big house that is becoming too much for us to handle. Its also beyond the kids price range by about double. So here is the brainstorm:

We sell the big house to the kids for half price
DW and I live in the downstairs apartment for a few months per year
We split the taxes and any major repairs.
When the house needs to be sold for whatever reason we split the sales price of the house with the kids.

Everybody wins. The kids get an equity position in a great house for cheap. We get to travel and not worry about the house being empty. If/when grandkids appear they've got built-in sitters.

Yeah, I know the devils in the details.


Genius at work or Wingnut on the loose?

[haha]

Quote:

Originally Posted by BUM Genius at work or Wingnut on the loose?

This is a really nice idea, and if you do it I hope it works. One risk is that your son and DIL get divorced. That risk would cancel the deal for me, but many people have more faith in human relations than I.

Ha

[Nords]

Quote:

Originally Posted by BUM Genius at work or Wingnut on the loose?

I'm not gonna touch that one! But I have a couple suggestions.

My PILs bought a townhome in the 1970s that stayed in tenants until the early 80s when their son moved in and started paying its mortgage as rent. He began with a roomate and eventually upgraded to spouse but he's paid that same mortgage for over 20 years. When PILs moved out here and the mortgage was finally paid off, they deeded the house over to him (with attendant gift-tax paperwork).

Another option would be for you & spouse to incrementally gift the house to the kids. You & spouse could each gift your son & DIL $12K/year for a total of $48K/year. If this tactic sounds attractive, get a lawyer to execute the (vocabulary warning: I may not have the latest terminology here) transfer of deed in lieu of sale.

[crazy connie]

Another option would be for you & spouse to incrementally gift the house to the kids. You & spouse could each gift your son & DIL $12K/year for a total of $48K/year. If this tactic sounds attractive, get a lawyer to execute the (vocabulary warning: I may not have the latest terminology here) transfer of deed in lieu of sale.
[/quote]

I like the sole & separate concept. You and wife could each gift 12K per year to son. I would be leary of gifting to DIL. It would frost me too much in 5 years time to see the big D hit and 1/2 of the monies walk.

Just me looking out for mine 1st!

[Martha]

I think you could work something out.

If you sell it to them for half price, the remaining value is a gift and you would have to file a gift tax return. I suggest you instead consider letting them buy a half interest in the house, to hold as tenants in common. Depending on your state's laws, you could sell them 1/2 on a contract or some kind of mortgage. You could later consider gifting them remaining portions of the home over time if you want. There are many ways to structure this and how to best structure it would depend on your own state's laws.

If you retained an ownership interest in the house then you have some rights to use the apartment and a right to money on the sale of the property. You probably would want to have a lawyer draft up a simple joint ownership agreement to address who does what and who pays for what.

[BUM]

Quote:

Originally Posted by HaHa This is a really nice idea, and if you do it I hope it works. One risk is that your son and DIL get divorced. That risk would cancel the deal for me, but many people have more faith in human relations than I. Ha

I've given some thought to this. Divorce, job transfer, a number of things could make the kids have to sell. Superfically, if they don't want to be there, then neither do we. If the "big D" hits, we already got 50% of the present day value up front and we're in line for another 50% of the proceeds. Let the kids sort out the rest.

I worry about protecting the equity, e.g. no HELOCs allowed. Kids can't default on their mortgage... things like that.

[Martha]

Quote:

Originally Posted by BUM I've given some thought to this. Divorce, job transfer, a number of things could make the kids have to sell. Superfically, if they don't want to be there, then neither do we. If the "big D" hits, we already got 50% of the present day value up front and we're in line for another 50% of the proceeds. Let the kids sort out the rest. I worry about protecting the equity, e.g. no HELOCs allowed. Kids can't default on their mortgage... things like that.

To be in line for 50% of the proceeds on the sale, and to have control over HELOCs and know whether the mortgage is getting paid, you are going to have to have some interest of record on the title. You could continue to own 1/2 the house as I suggested above. Another possiblity is to retain a life estate with an agreement as to how sale proceeds would be distributed. A lawyer in your part of the country might have a number of suggestions.

[donheff]

Quote:

Originally Posted by crazy connie I like the sole & separate concept. You and wife could each gift 12K per year to son. I would be leary of gifting to DIL. It would frost me too much in 5 years time to see the big D hit and 1/2 of the monies walk. Just me looking out for mine 1st!

Can you "gift" into a trust and get the normal gift tax exemptions?

[tryan]

Skip the legal dance ... allow the living arrangements you describe but keep the place in YOUR name. Tell your son and DIL WHEN you move - on you'll leave then place to them.

Your son hit the lottery ... DIL may be along of the ride.

[BUM]

Quote:

Originally Posted by Martha To be in line for 50% of the proceeds on the sale, and to have control over HELOCs and know whether the mortgage is getting paid, you are going to have to have some interest of record on the title.

Hi Martha. Thanks for focusing my fuzzy logic. I'm gonna run this by my lawyer.

Tryan, I like the KISS approach too. Its when THEY move (we're there as long as they are) that things can get dicey. They need equity for this to be a good idea.

Quote:

Originally Posted by crazy connie It would frost me too much in 5 years time to see the big D hit and 1/2 of the monies walk.

You know connie sooner or later it all walks, but thanks to all for the pointers.

[ladelfina]

Ok, so they're not gaining equity.. but neither are they paying rent or a mortgage.. If they time comes that they want to buy their own place.. isn't the "equity" the sum of all the unpaid rent/mortage that they could/should have been squirreling away over the years?

Kinda strange to "wish" you had equity in something you haven't exactly contributed towards. Sounds like "gift" to me.

Obviously highly personal how you resolve this.. just wanted to point out that, while the "equity position" sounds oh-so-desireable, in the end it is just the same as cash $$, except for all the ownership complications!

I personally would stay away from complex co-ownership situations.. I have see WAY too much of that in Italy, where it is the norm for parents to buy kids their first house outright. Most times this first house is next-door or downstairs!! It leads to a lot of grief. The kids never really feel the house is "theirs" to sell, and end up trapped. The spouse of the apt.-owning child never gets a full say in the disposition, or even renovations/decorating... Partial ownership can lead to all kinds of wierd power games; for example my MIL gifted her half-ownership in my SIL's apartment to DH... this to block BIL from being able to mortgage the apt. in the future should MIL pass away. So we have this "gift" that renders nothing (we can't really demand rent from the SIL who is perenially almost broke, while we are doing well), yet this "gift" puts us legally on the hook for 1/2 the property and income taxes (imputed income), which currently MIL pays anyway on our behalf.. A NIGHTMARE!

Wanna give? Give. But I would never co-mingle ownership or expenses, unless you are very, very, very, very sure of what you are doing.

[haha]

Quote:

Originally Posted by tryan Skip the legal dance ... allow the living arrangements you describe but keep the place in YOUR name. Tell your son and DIL WHEN you move - on you'll leave then place to them. Your son hit the lottery ... DIL may be along of the ride.

This is also what I would do. There are three generations of this in my family. When my Mom and Dad married, they moved into a flat in a triplex owned by Dad's Grandparents. They stayed there and paid minimal rent, did some upkeep, and saved money to buy a house themselves, which they managed in about 4 years. By this time the GPs wanted to move away from the river and floods to high ground in the burbs, so it worked out fine. My parents thought that close to free rent was huge gift, it never would have occurred to them to demand equity.

Later my Mom and Dad owned a triplex with very large nice flats. They rented one out, let my sister's family live in another, and occupied the ground floor. No one was stuck for child care, for help on sick days, for company for a meal or a beer, and it worked very well. Parents were not able to give the building to sister and family, because they needed it to fund assisted living, but they were able to give them some money to put a good sized down payment on a house of their own.

Not perfect and it takes flexible people, but it worked fine for them. It helped my that BIL is a real mensch who could get along with the devil if he needed to.

Ha

[Buckeye]

Unless you are in an area where values are going up like crazy, shouldn't they prefer not having to pay ownership costs (mortgage, rent, and repairs) just to get equity now? Even if costs are going up, aren't they ultimately getting the house (or cash) anyway? I would much rather be able to fully fund my 401(k), IRA, and put away additional savings than having my ownership be official.

Do they have to worry about the house being consumed by long term healthcare costs? I guess that would be one reason to get the house into their names sooner.

[BUM]

Quote:

Originally Posted by ladelfina isn't the "equity" the sum of all the unpaid rent/mortage that they could/should have been squirreling away over the years?

BINGO!

Quote:

Originally Posted by Buckeye Even if costs are going up, aren't they ultimately getting the house (or cash) anyway?

No, not necessarily DW and I might not leave legacy worth spit. We're in our 50's and hopefully have alot of living left. If we sold our little house and put the kids in here (and they paid all household expenses) we would be free to travel as we please and not have to worry about an empty house. Also we'd have a great place and family to return to.

All in all nice problems to have

[ladelfina]

Quote:

DW and I might not leave legacy worth spit.

Ooookaay.. given that you've said that... what if, when you start to wind down your travels, you don't feel like staying in "your" house (which will now effectively be your kids' house in which you will be guests, 1/2 owners or not..).. Maybe they'll have teens that'll resent giving up space to Gram 'n' Gramps.. Maybe there'll be an implicit care-giving role that DS or DIL might have problems fulfilling...

Quote:

When the house needs to be sold for whatever reason we split the sales price of the house with the kids.

Ahh, that sounds so simple!! But who decides what that "whatever reason" is, and when...? And do you feel confident that everyone concerned will be on same page looking into a crystal ball 10 or 20 or 30 years down the road? What if you want to cash out and go into an continuing care community off on the golf course somewhere, but your kids can't buy you out (since they've been disposing of their extra disposable income)? Will you (emotionally or legally) be able to force a sale and evict your kids? If the (sadly) 50/50 chance of a divorce comes into the picture.. will there be the issue of a DIL/grandkids wanting to stay put in "their" house while DS lives elsewhere? Of course I don't wish this on anyone, but you never know..

If the big house equity will need to come into play at some point in your retirement scenario, I'd say find another solution... If, OTOH, you have enough of a nest egg to do whatever you want for your foreseeable lifespan without the big house equity.. then these concerns might not affect you, so go for it.. since that would be, as you say, a nice problem to have.

Don't want to be a downer.. just think you should look at EVERY conceivable aspect.

[Texas Proud]

I would hate to 'live' with my parents no matter how much I could save....

And how much will you 'meddle' in their marriage??

Your house is not big enough for two couples...

I also agree with the other posters.... and mostly lada... if they have not been putting aside their 'rent' into savings ALONG with a reasonable other savings going forward, what makes you think they can swing even half of a house??

[BUM]

OK then, we're not doin' it.

[Martha]

Quote:

Originally Posted by BUM OK then, we're not doin' it.

Only you know your family and what it is like. I think we would have been fine buying into a home with my inlaws and it would have worked out. As it was, my FIL sometimes stayed in a small apartment in our place in the summer. He ate with us and drove one of our cars. It was nice having him around. So just because people here think it wouldn't work for their families doesn't mean it wouldn't work for yours.

[haha]

Quote:

Originally Posted by Martha So just because people here think it wouldn't work for their families doesn't mean it wouldn't work for yours.

As I said above, it worked over several generations in my family. Then I read the responses to the Asperger's test linked in another thread- maybe not such a good idea for high scorers on this thing!

Ha

[laurence]

Our Fred and Ethel - best friends for life, really - lived rent free in his Parents house (they had an attached studio that was lovely) for 4 years to save up money to buy a place. They were finally kicked out when after 4 years they were even deeper in debt ( and he earned more than me, she earned a little less than DW - but we have a 2500 payment!). You sound like wonderful parents, but all sorts of schemes to try to nursery/incubate some equity/net worth for your kids is not going to work until they start believing in the rules of the game. If you really want to help them, offer to manage their finances and put them on an allowance, and give them quarterly updates on their positive change in net worth. It's a lot of work.... good luck with that, whatever way it goes they are lucky to have you.