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  • home purchase for parent

    Trying to help my mother purchase a home in my home town in Texas. Purchase price is 190 and she wants to put down 80k. I've offered to give her 50k to help reduce the mortgage. She could qualify for financing on her own, but she would be house poor.

    The options are to put us both on the title to just transfer solely to me upon passing, or to put it in her name and just name me as the beneficiary (is that the correct term?) upon passing.
    1) if it's titled under both of us, do I need to fill out form 709 for gift tax purposes
    2) if it's only titled under my mother, I'm assuming whatever I put towards the home would need a form 709 filing
    3) are there any liability things I should think about if we are both titled, but she is the one who lives in the house, and I live out of state

    We've gone back and forth many times about the right thing to do. She currently rents a 1 bedroom apartment and they're continuing to increase her rent. My mother is 74 and worries about not leaving anything to the kids/grandkids (we've never said we expected anything, so I'm unsure of where this comes from ). The BEST financial decision would be for her to save her money and live with my family, but she doesn't want to do that. The second best would be to continue to rent in her current apartment and me subsidize her increased rent costs.

    She doesn't have my same liquidity concer in the event of an unforeseen health problem (she is in very good health, but I don't think I need to explain to physicians my concerns here).

    Second half of the post is probably just me venting because I can't steer away from the inevitable. So, any help on navigating the ownership, potential taxes, and liability consequences of all this would be great.

  • #2
    If your mom ends up in assisted living or a nursing home, the cost of that to her estate easily could take away a $190K house. On the other hand, you potentially have liability for things that happen with this house, especially as the "rich doctor" who owns it directly.

    From an asset protection and make sure you get the house when your mom passes away perspective, you could form an LLC to purchase the house, let your mom live there, and perhaps offer her a life interest if she's worried about you raising the rent or kicking her out instead of her current landlord. Downsides would be complexity, cost of tax filing and LLC compliance, missing out on stepped up basis, and possibly paying for property taxes, repairs, and HOA fees if she lives another 30 years.

    On the other hand, you could help your mom buy the house and realize you might never see that $50K back if she does need to use the equity in the home for her final years. As a doctor, you should be saving enough that $50K really won't move the needle all that much for whether you can retire or not. Don't get into a situation where you're buying your mom a bigger mortgage payment than she actually can afford and she ends up losing the house. However, $50K towards a $190K house doesn't sound like that kind of scenario.

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    • #3
      This is a complicated situation with multiple aspects to consider.

      There is current cost and responsibility sharing as far as you and Mom. There might be long term care financial considerations. There are liability considerations for you. There are inheritance and taxation issues when Mom passes. I would recommend you speak to an elder lawyer to get help on sorting all of this out.

      Perhaps if Mom owns the house, and it is highly leveraged, you could help pay the mortgage as needed. But the house might not be at risk for long term care because of the low equity? I am not experienced with all of the complexities involved, but I am trying to think of a way you might balance all of these various considerations.

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      • #4
        A house requires lots of maintenance. Has your mom owned a house before? The rent may be going up on her apartment but the costs of owning a home likely dwarf that. It will be hard for her to do a lot of stuff around the house that she can call the apartments maintenance crew for now. I am talking about changing light bulbs with high ceilings and smoke detector batteries and all outside issues.

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        • #5
          Hank I've grappled with that last statement a lot. No, the 50k won't move the needle in the grand scheme of things, especially at our savings rate. It's largely psychological that I don't like having that amount of cash in an illiquid instrument. She thinks that I can potentially rent this out if she moves to assisted living for whatever reason; however, the property taxes and insurance on this would be about $600-700/month because the state and local taxes are high. It would have to be paid off, but in reality, if my mom isn't living there, I probably won't keep the home as an investment property.

          White.Beard.Doc I've considered that this could be a sort of savings vehicle for long term care, if needed. I'd really prefer her to move in with us while she is healthy rather than in declining health. I'll have to find an attorney in her town that might be able to discuss this. Thanks

          Hatton My parents owned homes for 30 or so years. Father's poor financial decisions basically led to near foreclosure (financial infidelity- taking out second mortgage on house to help failing business without my mother's knowing. She worked in real estate since the early 90s). She wants a newer home because of reduced maintenance and because the older homes aren't selling for much less. I've tried to remind her the significant cost of taking care of a home- sort of the concept of the rent is the max you'll pay but mortgage is the minimum you'll pay idea. She is pretty hung up on leaving something to the kids/grandkids, and the only investment she really knows is real estate.

          Thanks for the help.

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