Possibly helping only child with first home purchase

[ponyboy]

The gifting exemptions are very generous IMHO so why wouldn't someone report as required? There's so little downside of reporting but significant for failure to report.

Agreed. Most people will never hit the lifetime threshold anyway.

No one really has an answer other than the IRS probably would never know. That was my hunch anyway, just wanted to see what others thought. I wish we were in a position to inherit 10s of millions!

 

[Koolau]

Agreed. Most people will never hit the lifetime threshold anyway.

No one really has an answer other than the IRS probably would never know. That was my hunch anyway, just wanted to see what others thought. I wish we were in a position to inherit 10s of millions!

I sure wouldn't turn down 10s of millions, but I just don't think more millions would change me much. I might fly first class or buy a C-8 Corvette. Otherwise, I have enough right now and don't spend as much as I could but YMMV.

 

[JohnDoe]

Though I would give an update. My DD is under contract for a new construction house with settlement in late April.
I signed a gift letter for the full amount we want to give her (150) with intentions of putting a lien on the title afterwards.
I have a bunch of questions for my lawyer before we sign that.

Hopefully rates will fall considerably over the next 8 months.

 

[rkser]

An update of DS's house situation,
they bought a new to them a $520k 3/2 older house close to their work place, we are glad our gift of $250k was helpful & they have a manageable mortgage.

 

[Koolau]

An update of DS's house situation,
they bought a new to them a $520k 3/2 older house close to their work place, we are glad our gift of $250k was helpful & they have a manageable mortgage.

Very nice gift. It's great that you can help out that way.

 

[camfused]

Opinions please...

We are going to be putting down the 20% downpayment for our niece (probably about $90K) for a townhouse. We don't want this to be a gift, and would want back 20% of the future sale of that townhouse. Yeah, I know it could go up or down, but we are ok with that.

Two concerns arise with this arrangement: 1) What if she never wants to sell that townhouse, and 2) what if DW and I both die, before she sells it.

Not sure what to do about #1, since we would not be able to force her to sell the townhouse in, say, no more than 25 years. We would be gone if past that point, and it is fairly unlikely she would live in that place longer than that.

To make it all "kosher", we want to draft up a letter that says: When she sells the townhouse, she will give us back 20% of the sale price. If DW and I are both gone, then she owes that money to our DD, who is 8 years younger than the niece (38).

If we write this up and all sign it and notarize it, is it "good"? We trust her, but just want to make this formal.

 

[Koolau]

^^^^^^^^

Have you thought of the implications if she should renege on the deal? It would put you (or your DW or your DD) in a position to have to "go after" your niece legally or to just let it slide. Any time money is involved like this, there is potential for damaged family relations.

I don't know the answer, but I have seen the results of broken promises/money issues within families.

Whatever you decide, I hope it w*rks out for you.

 

[Texas Proud]

You can put a time certain on the return of the money... IOW, say 15 years get an appraisal and she owe you 20% of whatever it is...

But also what Koolau says... I am not that generous when lending to family... heck, I cannot remember doing it ever...

 

[Koolau]

You can put a time certain on the return of the money... IOW, say 15 years get an appraisal and she owe you 20% of whatever it is...

But also what Koolau says... I am not that generous when lending to family... heck, I cannot remember doing it ever...

Actually, we have a rule: We never lend to family - it ruins their memory.

Seriously, if we want to help family, we will gift to them. It's a positive thing with little downside. Of course, they might disappoint us with how they end up spending the gift in relation to what they originally promised. If so, it's less "ticklish" to withhold any future gifts vs "going after" a loan that's not been paid back.

Family dynamics are complicated. Putting money into the mix can make the dynamics even more complicated. YMMV

 

[RetiredHappy]

My PCP is Chinese and he said to me "Chinese don't lend money to others because you lose that friendship right away after lending the money to the friend. You either gift the money and remain friends or just say no." I have never heard of this but it makes alot of sense.

 

[Koolau]

My PCP is Chinese and he said to me "Chinese don't lend money to others because you lose that friendship right away. You either gift the money and remain friends or just say no." I have never heard of this but it makes alot of sense.

I'm not Chinese, but this is my philosophy. It leaves the "whether to remain friends" in the other person's court. (If I don't lend to you, my friend, you can choose to remain a friend or not). If I lend to you and you do not repay, the ball is in my court. That seems unfair to me so I simply avoid it.

 

[camfused]

Thanks all for the sage advice, but we are probably going to do this anyway. If she does not repay, then yes, we will have strained relations with her, but would probably not seek legal remedy. It's "only" about $100K, and not worth the hassle to us.

We don't want to gift it to her, since there is another niece and nephew too and we don't want them to feel left out, and we can't keep giving money away. If the other niece wanted to do something similar, we would probably do the same for her. Now the nephew...no way, due to his track record.

We consider this an investment (with a return, and lowish risk) in one of our family member's well-being.

 

[Koolau]

^^^^^^^^

Best luck. I hope it all w*rks out for you.

 

[pb4uski]

I get what you want to do but a question first. You want your money back eventually, but with interest, no interest or a 20% participation in the growth in value of the condo?

Agree that I would not leave it so open ended, but with a due date far out enough that it doesn't cause problems with her mortgage financing. I'm thinking after 15 years she needs to either get an appraisal and pay you 20% of the value less the cost of the appraisal or perhaps even keep it simple and have her pay you the loan plus 15 years interest at 5% per annum. Or something along those those lines.

 

[JohnDoe]

Opinions please...

We are going to be putting down the 20% downpayment for our niece (probably about $90K) for a townhouse. We don't want this to be a gift, and would want back 20% of the future sale of that townhouse. Yeah, I know it could go up or down, but we are ok with that.

Two concerns arise with this arrangement: 1) What if she never wants to sell that townhouse, and 2) what if DW and I both die, before she sells it.

Not sure what to do about #1, since we would not be able to force her to sell the townhouse in, say, no more than 25 years. We would be gone if past that point, and it is fairly unlikely she would live in that place longer than that.

To make it all "kosher", we want to draft up a letter that says: When she sells the townhouse, she will give us back 20% of the sale price. If DW and I are both gone, then she owes that money to our DD, who is 8 years younger than the niece (38).

If we write this up and all sign it and notarize it, is it "good"? We trust her, but just want to make this formal.

I don't think a notarized letter would hold up if things went south. With your added stipulation of funds to your DD, I would consult an attorney.

We are doing something similar but it's for my DD as she settled on her house last month. We are talking to the attorney next week to draw up and file a lien against her title. One of my questions is what if we die.

I don't know how long she will live in this house but it doesn't really matter. She is an only child and will inherit everything anyway and we won't need the money.

 

[pb4uski]

Also see Intra-family Mortgage Loans | National Family Mortgage ®

Whatever structure that you settle on I think you want a legal instrument/note with the property as collateral (second lien) and to have it recorded.

 

[brett]

Why not just do what you think is right and what feels right to you in the circumstances?

Why would you ever care what anyone else thought? Does it matter?

Besides....you are going to do this in any event so why second guess or sweat your decision.

 

[Stormy Kromer]

Opinions please...

We are going to be putting down the 20% downpayment for our niece (probably about $90K) for a townhouse. We don't want this to be a gift, and would want back 20% of the future sale of that townhouse. Yeah, I know it could go up or down, but we are ok with that.

Two concerns arise with this arrangement: 1) What if she never wants to sell that townhouse, and 2) what if DW and I both die, before she sells it.

Not sure what to do about #1, since we would not be able to force her to sell the townhouse in, say, no more than 25 years. We would be gone if past that point, and it is fairly unlikely she would live in that place longer than that.

To make it all "kosher", we want to draft up a letter that says: When she sells the townhouse, she will give us back 20% of the sale price. If DW and I are both gone, then she owes that money to our DD, who is 8 years younger than the niece (38).

If we write this up and all sign it and notarize it, is it "good"? We trust her, but just want to make this formal.

Sounds like a planned train wreck to me.

 

[Texas Proud]

Yea, thinking about it more... why are you trying to get any gain in the condo?

Treat it like a loan... use a rate that you can live with and have her start to pay it back when you feel comfortable.. could be a year, could be 5 years...

I would only agree to have you get 20% of the profit IF you paid 20% of ALL annual expenses... why should she pay 100% of the condo fees etc that benefit you? What if there were a large assessment? Are you going to pay 20% of that?

Nope, the more I think about it the more I am against you getting 20%...

 

[Montecfo]

Just a comment: it's an interesting thread. The idea that kids can't afford anything "nice" with their own resources kind of puts the cart before the horse I think. The idea is to strive.Buy what you can afford. Be motivated to move up the property ladder.

I remember when I was a young guy and bought the cheapest house I could find and in an up and coming neighborhood (some might have said sketchy). I was very proud of it but I know some were probably a bit taken aback. I remember a then renting who said he wanted to buy a house but not a "starter house". So while properties appreciated he deferred a purchase. Not a good plan in my view.

Having said that I recall people in nicer houses who admitted joining the legions who got down payment money from parents. I never wanted that. Nor was it offered (nor possible).

But we are a richer nation now. My (our?) financial position is better than parents. And even my parents might have taken a different tack with a daughter.

We have agreed we stand ready to help our son with down payment money without strings. But I worry about motivation and striving.

Anyway, just some divergent views perhaps. Now back to the regularly scheduled thread.

 

[Steve P]

In our area, 225k doesn't really get you anything nice. The wife and I talked about giving our daughter 50k as a down payment which would boost her price point to around 275k.

Another option would be to not 'give' her anything but to take an equity stake in a house of a certain percentage and then let her take a mortgage out on the rest. By doing this, I might feel better about purchasing a nicer more expensive house.

Has anyone done this and can comment on the good and the bad?

Also, the funds we would ultimately use are from our retirement portfolio (1.8mm). Since I am not 59.5 yet, I think my options are to use after tax funds or possibly w/d some of our Roth contributions. I did move some things around to start a house fund which would accumulate from cash flow at about 4k a month while she is looking.

The only pain we would feel is that we have been building up our after tax account, but cash flow could replace that quickly and the wife isn't interest in retiring any time soon. We have about 400k in tax free accounts and a 350k line of credit to use for a possible cash sale. No debt on the books.

Were just kicking ideas around now. Thoughts? Thanks.

I took a slightly different approach to helping. My "kid" decided on her own what she could afford and was buyng based on that. When transaction was nearing closer, I helped her with down payment and then periodically show her the ammortization schedule and gift her a year of mortage payments to bring the 30 year down and take chunks off years off her commitment. She's now well into her 30 year payment schedule, can manage this on her own if she ever needed too, and has learned a lot about financial management and debt impact.

 

[COcheesehead]

Arrangements like this put undo pressure on both parties.
I did two private loans/investments in my lifetime. Both turned out fine, but with some icky points in between.
It sounds good, until it’s not.

 

[lakerunner]

For those who have added their name to a child's deed. Is there any risk of being part of a law suit if something where to happen on the property?

 

[COcheesehead]

For those who have added their name to a child's deed. Is there any risk of being part of a law suit if something where to happen on the property?

Of course

 

[camfused]

I get what you want to do but a question first. You want your money back eventually, but with interest, no interest or a 20% participation in the growth in value of the condo?

Agree that I would not leave it so open ended, but with a due date far out enough that it doesn't cause problems with her mortgage financing. I'm thinking after 15 years she needs to either get an appraisal and pay you 20% of the value less the cost of the appraisal or perhaps even keep it simple and have her pay you the loan plus 15 years interest at 5% per annum. Or something along those those lines.

No interest, per se, just 20% participation in the growth (or loss) of the townhouse over time.

I see what you are proposing, but let's say the townhouse does appreciate and 20% of the value in 15 years is $150K. How on earth would she be able to pay us that large amount? If she took out another mortgage, then her payments would be north of $2K/month, at current rates.

So, I think the most practical solution here is, if she agrees to it, to tell her she can have the 20% from us, but she would have to sell the house within 15 years and give us 20% of the sale price.

In the mean time, we are preparing to buy (outright) another townhouse for DD soon. Just have to fill out a form 709 for that one. She has a disability and this is very likely the only way she would ever be able to get a house, so of course we are helping her.