Buying your parents home taxes, gifts, step up?

[bingybear]

Wouldn't you be able to use the $14,000 gift tax exclusion to cover this? If married you and DW could double that. And if relative has a spouse you could double again. I'm assuming this could defuse the rent free option.

Yes you can use the gift tax exclusion. However, "giving the house away" likely would exceed the exclusions.

 

[Car-Guy]

Wouldn't you be able to use the $14,000 gift tax exclusion to cover this? If married you and DW could double that. And if relative has a spouse you could double again. I'm assuming this could defuse the rent free option.

Maybe for rent but I'm also planning to "give them some cash" along the way. I'll need to think about how to do that and avoid the tax.....

The relative doesn't have a spouse. As I understand the gift tax issue, I can (and the DW) can each give an individual 14k a year, tax free. That would be 28k a year. The house is worth well over 100k so I need to spread it out over many years and that is why I want to look into the lifetime gift tax exclusion option I have read about. Or, maybe I could deed over a room a year until they own the entire house.

 

[audreyh1]

The relative doesn't have a spouse. As I understand the gift tax issue, I can (and the DW) can each give an individual 14k a year, tax free. That would be 28k a year. The house is worth well over 100k so I need to spread it out over many years and that is why I want to look into the lifetime gift tax exclusion option I have read about . Or, maybe I could deed over a room a year until they own the entire house.

You can gift the annual rent - whatever that might be, less than $28K surely.

Or apply it to the house ownership, deeding $28K of the house value each year.

 

[powerplay]

Maybe for rent but I'm also planning to "give them some cash" along the way. I'll need to think about how to do that and avoid the tax.....

The relative doesn't have a spouse. As I understand the gift tax issue, I can (and the DW) can each give an individual 14k a year, tax free. That would be 28k a year. The house is worth well over 100k so I need to spread it out over many years and that is why I want to look into the lifetime gift tax exclusion option I have read about. Or, maybe I could deed over a room a year until they own the entire house.

Would something structured as a lease with option to buy work out where the annual gifting of 14k/28k would "pay" the lease. Lots to discuss with a lawyer.

 

[Car-Guy]

I'll try to remember to respond to this thread again, after I talk to a tax/estate lawyer.

 

[Luck_Club]

This has been an interesting thread since I'm in a "similar" situation. I have a house (currently vacant) that I don't need or want and was thinking of just selling it. However, I also have a close relative that really needs a place to live in the same area but they really can't afford to buy a house. I'd like to give the house to the relative but I'm afraid they would sell it or take out loans against the house or reverse mortgage it, etc, just to get cash. Also, if I give it to them, I'll face a gift tax which I don't feel is fair to have to pay. As I look into this, it sounds like even if I keep ownership in my name and not charge them any rent, I'd get hit with a gift tax anyway. . I've read about a lifetime gift exclusion tax option so, I guess it's time to talk to a lawyer to see what I can do to help someone out that I care about without paying more taxes and somehow protecting them at the same time.

I guess I'd rather pay a lawyer for guidance than pay the government anymore tax and get little to nothing for it.

You hit the nail on the head. We also are worried if we just pay it off even @73 some [-]idiot banking scum[/-] unscrupulous mortgage lender would give them a loan with no income. So we need to lay claim to the asset.

For others this is not for estate planning purposes, but a way to allow the parents some rest. If they do fall into nursing home issues and look back at the asset, we don't care about the excess equity, just the cash coming out of my account.

 

[Luck_Club]

Unless I missed something, the OP said they were going to buy the home from the parents and the parents would pay the property taxes, insurance and utilities as rent. If that is the case, there is no risk of losing the house due to the parents bills or Medicaid, they are tenants. The problem would be, as others have said, if the siblings got into financial difficulty or divorce.

The sibling issues are interesting. I planned on putting in the money but signing an agreement absolving my claim to the asset, and would insist on my SIL husband signing a similar note.

 

[Sunset]

You hit the nail on the head. We also are worried if we just pay it off even @73 some idiot banking scum would give them a loan with no income. So we need to lay claim to the asset.

...... a way to allow the parents some rest. If they do fall into nursing home issues and look back at the asset, we don't care about the excess equity, just the cash coming out of my account.

Buying the house outright will protect your investment, but might not let them rest.

A big part of the issue is after you buy the house, do your parents increase their spending a lot and still need to work, and you just shifted the reason for the work ?

Do they have other debts like CC that they are not telling you ?

 

[Luck_Club]

Buying the house outright will protect your investment, but might not let them rest.

A big part of the issue is after you buy the house, do your parents increase their spending a lot and still need to work, and you just shifted the reason for the work ?

Do they have other debts like CC that they are not telling you ?

They did declare bankruptcy about 7 or 8 years ago, so they could have racked things up again, we don't know.

You all may be right, that the house burden may not allow them to rest any easier, because they will be back in debt in no time. I jokingly said if we did it, they might go out and buy a super expensive "new car" or something.

We bought them a car about 8 months ago while they waited to clear an inheritance. They are suing the executor because they think he stole money. Lawyers have made money, the other heirs have been paid out, but they are "holding out" because there has to be more money.

My thought is it would kind of protect the siblings, and ease our worries since we are the only family members close enough to watch them getting more and more tired.

 

[rollergrrl]

It sounds like the parents have some equity in the house. What about talking them into downsizing and using the surplus into outright buying a place. Sometimes mixing money and family too much can cause issues with the family. What if a sibling runs into finically troubles? You mentioned they have spending issues, won't this make you feel the need to micromanage their spending or allow it to bother you more seeing you now have invested in them?

 

[Gill]

This has been an interesting thread since I'm in a "similar" situation. I have a house (currently vacant) that I don't need or want and was thinking of just selling it. However, I also have a close relative that really needs a place to live in the same area but they really can't afford to buy a house. I'd like to give the house to the relative but I'm afraid they would sell it or take out loans against the house or reverse mortgage it, etc, just to get cash. Also, if I give it to them, I'll face a gift tax which I don't feel is fair to have to pay. As I look into this, it sounds like even if I keep ownership in my name and not charge them any rent, I'd get hit with a gift tax anyway. . I've read about a lifetime gift exclusion tax option so, I guess it's time to talk to a lawyer to see what I can do to help someone out that I care about without paying more taxes and somehow protecting them at the same time.

I guess I'd rather pay a lawyer for guidance than pay the government anymore tax and get little to nothing for it.

Are you sure you have a gift tax problem? You don't unless you anticipate your combined gifts and ultimate estate will exceed $5 million.
Gill

 

[Taxman59]

Thanks for the lesson in the law, but there is still considerable risk when the transfer is between closely related parties such as parents and children. Creditors could go after both the cash and the transferred real estate.
Gill

In my experience, someone who feels wronged (including creditors) will file suits over anything!

 

[Car-Guy]

Are you sure you have a gift tax problem? You don't unless you anticipate your combined gifts and ultimate estate will exceed $5 million.
Gill

The lifetime gift tax limit is currently 5.45m so probably not (but you just never know until the end ) I think I'll need to apply the lifetime gift exemption/unified tax credit and file IRS form 709 to be covered and not worry about the "annual" limits. I need to meet with an estate/tax attorney anyway for other issues, so I'll find out then exactly what my options are and/or what needs to be done at that time.

 

[MooreBonds]

We bought them a car about 8 months ago while they waited to clear an inheritance. They are suing the executor because they think he stole money. Lawyers have made money, the other heirs have been paid out, but they are "holding out" because there has to be more money.

My thought is it would kind of protect the siblings, and ease our worries since we are the only family members close enough to watch them getting more and more tired.

Hmm....so are you certain that if you (and siblings?) buy the house from them, that they will indeed maintain the house? What happens when the property tax bill comes due, or a new roof is needed, and they answer "Well, you have the money, are you going to force your mom/dad to pay for this when you have more than us? It's your house, you take care of it. We don't care if we pay the taxes, our name isn't on the title!"

Are you willing to kick them out of the house [-]if[/-] when they ask you to pay for something more than you already have? Are they going to pay you back for the car? When? what payment terms?

If they goaded you into buying them a new car, why would real estate taxes be any different?

Perhaps "goaded" is a strong word....but how could two adults, both working in their 70s, need their child to buy them a car, especially after declaring bankruptcy 7 years ago and (assumedly) wiping their debts out? Are they already up to their eyeballs in debt again that they can't afford to buy their own car??

I only see issues coming up with these parents as your tenants. Likely sooner than later.

 

[OldShooter]

Hmm.... I only see issues coming up ...

Yes. & it's not just the parents. When you talk to the attorney be sure to discuss how intra-sibling issues are dealt with. Someone stops paying whatever he is supposed to pay. Someone gets divorced and the dear departed leaves owning half of the sibling's share in the asset. Someone dies unexpectedly and the heirs don't want to hold the asset any longer. ... the list goes on and on.

 

[Sunset]

Since they are both old, why not just tell them to sell the house, and rent a townhouse or apt. No maintenance, no mortgage, no repairs. They are certainly old enough to downsize.
When you consider, property taxes, mortgage, repairs, heat, elec, water, garbage collection, the renting will probably be cheaper per month and free up a couple hundred thousand.

 

[Luck_Club]

Hmm....so are you certain that if you (and siblings?) buy the house from them, that they will indeed maintain the house? What happens when the property tax bill comes due, or a new roof is needed, and they answer "Well, you have the money, are you going to force your mom/dad to pay for this when you have more than us? It's your house, you take care of it. We don't care if we pay the taxes, our name isn't on the title!"

Are you willing to kick them out of the house [-]if[/-] when they ask you to pay for something more than you already have? Are they going to pay you back for the car? When? what payment terms?

If they goaded you into buying them a new car, why would real estate taxes be any different?

Perhaps "goaded" is a strong word....but how could two adults, both working in their 70s, need their child to buy them a car, especially after declaring bankruptcy 7 years ago and (assumedly) wiping their debts out? Are they already up to their eyeballs in debt again that they can't afford to buy their own car?? I only see issues coming up with these parents as your tenants. Likely sooner than later.

These are all very very good points.

The car was at our suggestion, so only we are to blame. The plan was to get paid back when the estate was settled in a few months. So we did it to prevent them from getting another payment, since their car had to ... just had to be replaced.

It is more of a charity thing for my in laws, then anything else. I also feel more and more guilty as my wife and I let loose a little with vacations, and retirement plans. The MIL & FIL continue to struggle, and with the other siblings seeing them only for short visits every couple of years, my Wife and I have to deal with the mess when it finally hits the fan.

On top of that if we do nothing, we get the joy of watching them kill themselves working all the time.

 

[pb4uski]

I wonder if the OP and siblings might be better off just offering the parents a refinancing with an interest only mortgage... it would give the parents cash and their budget financial breathing room. The OP and siblings could gift the interest back to the parents if they wish to. While they should confirm with a lawyer, I suspect as long as it was done arms-length and properly recorded that the mortgage would stand ahead of other creditors (includig Medicaid) if the parents ended up in a nursing home, at which point the OP and siblings would get their money back when the property is sold.

 

[ERD50]

Are you sure you have a gift tax problem? You don't unless you anticipate your combined gifts and ultimate estate will exceed $5 million.
Gill

+1 Thanks, beat me to it! -ERD50

 

[MooreBonds]

It is more of a charity thing for my in laws, then anything else. I also feel more and more guilty as my wife and I let loose a little with vacations, and retirement plans. The MIL & FIL continue to struggle, and with the other siblings seeing them only for short visits every couple of years, my Wife and I have to deal with the mess when it finally hits the fan.

...

You all may be right, that the house burden may not allow them to rest any easier, because they will be back in debt in no time. I jokingly said if we did it, they might go out and buy a super expensive "new car" or something.

Are you wanting to help them out because they have worked all their lives, but never advanced into decent-paying jobs and just have scraped by and you want to share your blessings with them....or is it because your in-laws have spent spent spent (and them some) all their lives and can't/don't want to pay the piper and face the jury for the results of their free-spending ways?

If the latter, don't you DARE feel guilty about living within your means and only now enjoying the fruits of your labor! People need to quit feeling guilty for simply making good choices while the rest of the world burns.

 

[Floridatennisplayer]

They are 73, have declared bankruptcy in the past, spend like drunken sailors, at their...old age still owe a lot of money on a home.......? And you want to do what?

I think someone needs to tell them it's time to be responsible. Go ahead....throw your money at it. It's your life.

 

[Luck_Club]

Further update. As my Wife and I have dove into this to try and understand what is going on, we find out that they financed a refrigerator 2 years ago when it broke. Then recently paid it off with a windfall, and financed a stove and dishwasher which were old but not broken.

The payback windfall is further delayed, against the advice of me and FIL brothers.

The other two siblings are reluctant to address the issue. Though they do appear more receptive to explore it then a few years ago.

So as others have said "don't you dare feel guilty about living below your means all these years." We've (DW &I) have set our date 24 months from now, and if the house goes under so be it. Don't really care that much. Hate to see them suffer, and bust their arse to the end, but if her own blood line isn't willing to step to the plate why should I?

Maybe I was just looking for an excuse to delay.

 

[Blue Collar Guy]

I would structure it like this. Do nothing, let the other 2 siblings enter into this megillah. I dont like family finances intertwined with in laws.

 

[Yarnstormer]

Honestly, I think I would let them continue as is, then when health issues demand they stop working, and hopefully can’t get to stores as much, have a big yard sale and downsize them to an apartment or condo as needed. There are probably other debts you are unaware of.

 

[gerntz]

Thanks for the lesson in the law, but there is still considerable risk when the transfer is between closely related parties such as parents and children. Creditors could go after both the cash and the transferred real estate.
Gill

Don't know where you get the term "transfer" for this situation of a property sale.