Inheritances, estate planning and what do we owe our kids??

[bclover]

I found myself in a very interesting situation on Saturday. Background. A good friend of mine's parents own a beach house on the jersey shore, dad died a few years back so mom still owns it. Mom is 75. It is rented out during the "season" and me and our girlfriends have spent many weeks there over the years. she does use a local realtor to managed the logistics

So Saturday we drive mom over to kind of clean it up and semi get it ready for the winter.
Management company sends out a statement going over what the house made, their fees, yada yada yada. still a mortgage on the property.

And thus goes the conversation. it's just the 3 of us, mom, friend/daughter and me. Friend/daughter is reading through the statements

Daugther : hey mom do you have mortgage insurance on the house?
mom: what do you mean?
daughter: If you die the insurance will pay off the mortgage on the property.
mom: I don't think so, why?
daughter/friend: well because if we inherit the property and you don't we'll have to pay the mortgage off.

lol, at this point I'm looking for the nearest exit.

Mom, (going ballistic) says "you mean to tell me, that after raising you kids, sending you to college fully paid, helping you with your wedding, I now have to insure you vacations"

Daughter/friend: no mom but it's smart financially, why not have the bank pay off the mortgage if it's available. BC, what do you think, explain it to her.

Me: I think I left my car park in a tow away zone, I gonna go check....

anyhoo, needless to say mom was offended and my girlfriend couldn't understand why she didn't understand why they should have mortgage insurance.


So what happens when someone inherits a property that still has a mortgage on it? can they just assume the mortgage?

 

[bclover]

My girlfriend did call and ask me what I thought after we dropped mom off.

I said that if someone wants to leave me a 3 bedroom beach house 1/2 block from the ocean, mortgage or not, I'd consider myself lucky.

 

[Car-Guy]

Be very careful..... To answer your question, I'm pretty sure the estate would assume the debt.

Why doesn't she (daughter) offer to pay for the insurance?

 

[gerntz]

iersey doesn't have a shore. That's a misnomer. They have beaches like everywhere else.

 

[donheff]

Hm. I never had mortgage insurance on either house. DW and I carried large term life policies under the theory that if one of us died the other should be able to ER as a compensation. We figured if we both went the big policies would enable the kids to deal with the mortgages and a whole lot more. Or they could sell the houses. Either way, I wouldn't get bent out of shape at the daughter's presumption - but it is presumption.

 

[bclover]

iersey doesn't have a shore. That's a misnomer. They have beaches like everywhere else.

"dems fighting words"

any good Philadelphian or South Jerseyian will tell you they go to the Jersey shore,

 

[bclover]

Be very careful..... To answer your questions, I'm pretty sure the estate would assume the debt.

Why doesn't she (daughter) offer to pay for the insurance?

I didn't even think of that but in my defense, I was trying to get outta the range of fire. I have a standard policy of not getting involved with other folks parents. I've got my own cra-cra elderly mother in law and 100 year old aunt.

 

[Car-Guy]

I have a standard policy of not getting involved with other folks parents.

Sounds like a really good "standard policy" to me.

 

[athena53]

The heirs might have to take out a new mortgage (if they qualify)- otherwise the property might have to be sold to pay the debt. This doesn't happen when property passes between husband and wife after death but I don't know what happens if it passes to other family members.

Because of Mom's age, mortgage insurance might be expensive but I agree that the potential heirs should pay for it if they want it- but they should also make sure Mom deosn't change her mind and leave the property to her favorite charity!

And one more thought: they should ask what property insurance costs. It can be crazy on coastal properties so it might be harder to make enough money renting the place out.

 

[Dash man]

The heirs might have to take out a new mortgage (if they qualify)- otherwise the property might have to be sold to pay the debt. This doesn't happen when property passes between husband and wife after death but I don't know what happens if it passes to other family members.

Because of Mom's age, mortgage insurance might be expensive but I agree that the potential heirs should pay for it if they want it- but they should also make sure Mom deosn't change her mind and leave the property to her favorite charity!

And one more thought: they should ask what property insurance costs. It can be crazy on coastal properties so it might be harder to make enough money renting the place out.

Our property insurance two blocks from the Jersey Shore is only $1468/year. Flood insurance can be much higher. Worst case for us would be $3854/year, but we’re waiting on a flood elevation certificate that should reduce it to about $700/year since the home is elevated slightly.
We expect weekly rents of between $3400-$4000/week. I think she’ll make money renting it out, even with property management and cleaning expenses.

 

[athena53]

Our property insurance two blocks from the Jersey Shore is only $1468/year. Flood insurance can be much higher. Worst case for us would be $3854/year, but we’re waiting on a flood elevation certificate that should reduce it to about $700/year since the home is elevated slightly.
We expect weekly rents of between $3400-$4000/week. I think she’ll make money renting it out, even with property management and cleaning expenses.

Thanks- I meant "property" in the general sense of fire + flood. It could still be a shock to people who live inland and expect total homeowners coverage to be proportional to what they pay for their homes.

I lived in NJ until 2003 and I know rents on shore properties were high (to me)- but if you put a couple of families in a house and consider what you save on hotels and eating in restaurants it looks better.

 

[eytonxav]

And I thought mortgage insurance was for situations involving periods of job loss where the insured could not pay the rent.

 

[ivinsfan]

How many children in this family? If it's more then one, assume the house will be sold so the mortgage won't matter.

And I'm actually wondering how a 75 year old takes out insurance to pay off an outstanding mortgage balance? It's really just life insurance isn't it? There must be some underwriting standards otherwise every older couple with a mortgage and a seriously ill spouse would just buy insurance.

 

[sanfanciscotreat]

If I was likely to inherit a vacation home with a mortgage, what is the balance relative to the value of the property and has there been a net profit from renting year to year?

 

[HadEnuff]

How many children in this family? If it's more then one, assume the house will be sold so the mortgage won't matter.

And I'm actually wondering how a 75 year old takes out insurance to pay off an outstanding mortgage balance? It's really just life insurance isn't it? There must be some underwriting standards otherwise every older couple with a mortgage and a seriously ill spouse would just buy insurance.

My family has faced this very situation, on both sides of the equation. My folks had a beach condo none of the kids could afford to take over, and I have a lake home that probably neither of my kids could take over.

The best thing, and this is very hard for some families, is to have a discussion among the parents and children. Heck, at 75 years of age, there should be no guarantees or promises that Mom won't sell the place before she dies.
In my Dad's case (Mom died first), the proceeds of the condo sale paid for his LTC.

I have also seen cases (not in my family, but friends) where a parent sold the property without even offering it to the kids. They were crushed that they weren't even given an opportunity to buy it from the parent(s). Some communication could have saved a lot of bad feelings.

 

[6miths]

Mortgage insurance is generally a bad deal even for the young. For most it is better to have a term life policy to cover outstanding liabilities if needed at all. Both term and life insurance are going to be expensive (very) for a 75 year old. Agree on staying out of it. Also agree that the mom should give the kid a slap. Probably best thing to do is to sell the place, pay off the mortgage and give the remaining proceeds to a home for wayward cats. Just to teach the daughter a lesson.

 

[audreyh1]

I think the daughter is not realizing how selfish she is being. Wanting her mom to pay extra (if even possible) so the beach house is free and clear for heirs? Meanwhile apparently she gets to use this house often.

She says "it's a smart move" - well, yeah - for her. For mom? Maybe not so much.

Great answer by the way:

I said that if someone wants to leave me a 3 bedroom beach house 1/2 block from the ocean, mortgage or not, I'd consider myself lucky.

 

[ivinsfan]

I think the daughter is not realizing how selfish she is being. Wanting her mom to pay extra (if even possible) so the beach house is free and clear for heirs? Meanwhile apparently she gets to use this house often.

She says "it's a smart move" - well, yeah - for her. For mom? Maybe not so much.

Great answer by the way:

That's why I asked how many kids were in the family. The daughter might have seen trouble coming with sibs agreeing to sell or make mortgage payments or whatever. Maybe DD has good memories at the beach house and wants it to stay in the family and is worried an outstanding mortgage will make that less likely. Now if she's an only child then shame on her.

 

[bclover]

Mortgage insurance is generally a bad deal even for the young. For most it is better to have a term life policy to cover outstanding liabilities if needed at all. Both term and life insurance are going to be expensive (very) for a 75 year old. Agree on staying out of it. Also agree that the mom should give the kid a slap. Probably best thing to do is to sell the place, pay off the mortgage and give the remaining proceeds to a home for wayward cats. Just to teach the daughter a lesson.

She threaten just that.

I think that there is also the usually "adult" kid vs mom dynamics involved.

I did tell friend that, the way she phrased her concern was "tacky" at best.

so to answer a few questions.

My girlfriend "S" has a younger sister. So two daughters and 5 grandkids. I've known her for 15 years and the house has been in the family since I've known her.

Evidently Mom and dad, born and raised in Philly, dad was a retired Philly cop, mom worked for the library. lived well below their means, brought the house in their mid 50's when the girls finished college, moved back to the area and began having kids. the primary row home in Philly was paid off so they felt fine with taking a new mortgage for the shore home.

Can't say how much is left on the note but I imagine like many of the Jersey shore community, real estate has blown up in regards to price so maybe a lot of equity there.

 

[ivinsfan]

She threaten just that.

I think that there is also the usually "adult" kid vs mom dynamics involved.

I did tell friend that, the way she phrased her concern was "tacky" at best.

so to answer a few questions.

My girlfriend "S" has a younger sister. So two daughters and 5 grandkids. I've known her for 15 years and the house has been in the family since I've known her.

Evidently Mom and dad, born and raised in Philly, dad was a retired Philly cop, mom worked for the library. lived well below their means, brought the house in their mid 50's when the girls finished college, moved back to the area and began having kids. the primary row home in Philly was paid off so they felt fine with taking a new mortgage for the shore home.

Can't say how much is left on the note but I imagine like many of the Jersey shore community, real estate has blown up in regards to price so maybe a lot of equity there.

So you basically have 4 adults that will have a say about when happens when Mom is gone..maybe 10 years left on the shore house payments...I'd say daughter shot off her mouth before her brain was in gear.