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  • #16
    As said above, 400k interest-free loan is not a "slight" benefit. Again that's $16k a year assuming 4%.  Do some of you pass up on contributing to a 401k because you can only contribute $18k a year?  And the tax savings is only a portion of that.  I'll take an extra sixteen grand all day, everyday.

    Also, there is nothing illegal about a 0% loan.

     

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    • #17
      Everyone wants to believe that they will not be the ones to lose relationships over money, yet everywhere we look are fractured families and friendships over this issue. How many of these people thought before hand that their best friend, parent, sibling, etc would break off all contact after a monetary dispute? Even normally sane people get crazy over money.

      Family is too valuable to let a "slight" amount of money to get in the way of relationships. The OP makes 500K a year and is going to risk family harmony for 16K a year?

      Accept any gifts, politely decline any loans. Agree with previous post that if FIL wants to gift you the amount of interest saved each year, great.

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      • #18
        It's a personal decision but I wouldn't do it.  I would take the 100k gift he has given to all his other children but not the rest.  It doesn't sound like he's done this deal with his other children, so why with you?  Does he think you really need the help (you don't).  Could create sibling rivalry and unnecessary drama.  And I would just feel beholden to my FIL (or father, in your wife's case) which is never a good thing.  Even if the relationship is great now, decisions like this have a way of coming back to bite you later--I've seen it plenty of times.

        FWIW, you can easily reach financial independence in 10 years even with a traditional mortgage for the 400k balance with an income of 500k.

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        • #19
          I have a similar family situation with a generous, well-off set of in laws. Feel free to PM me if you want to hear more specifics.

          A gift is a gift. Accept whatever he is offering and say thank you for his generosity (assuming it is truly a gift and has no strings attached - and it sounds like it is truly a gift).

          Don’t borrow a penny from him. You don’t need it. You can pay off 400k in 2 years with your taxable contributions. You’re can get a sub 4% ARM. There is nothing to gain except for a small amount of interest over a couple years.

          It would be pennywise but pound foolish to take that loan.

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          • #20
            To reiterate and endorse a few good points:

            1) 0% loans might be treated like gifts by IRS, could really complicate things

            2) As others have said the character of the FIL really matters. If you think he's going to practically forget he did this and it's a rounding error on his NW that would make more likely to work out. However he would need to 2 (not 1) std dev above the mean in terms of generosity for this to be a great idea.

            3) OTOH, if you know his estate plan, he's that rich, and the money is coming to you anyway that would make me more likely to let him do it.

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            • #21
              This does seem to be more of a values question but I can address the tax implications.  In regards to gifting the $100k down payment that is not a problem.  You actually are not allowed to receive a "loan" for down payment so a lender will classify it as a gift no matter what.  To keep things clean, your father in law should file a gift tax return and report the amount that is above the gift tax exemption which is $15k/person or $30k/total for the two of you.  Thus, $70k gets reported on the gift tax return.  There is no tax cost but more of a filing requirement to show the IRS how much your father in law has used up for his lifetime gift tax exemption which is now at $11M for an individual.

              The 0% interest loan is not technically allowed.  Any inter personal/family loan needs to have interest assessed.  If you do not pay him interest then your father in law should technically accrete interest meaning he reports an interest amount on his tax return even if you aren't paying him any.  The cleaner way to do it is to pay him interest.  There are prescribed rates that you can use that the IRS reports (AFR rates).  If he wants to give it outright then gifting it might make more sense as it will be cleaner for the two of you.  Before making a final decision, looking at the cost of taking out a doctor loan may be beneficial.  I don't recommend the 0% down doctor loan because the rates are not favorable but the 10% down loans have good terms.  BofA tends to be the most competitive in this area in my experience.  With your savings rate, mortgage on a $400k place will be very reasonable.  Hope this helps!

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              • #22




                This does seem to be more of a values question but I can address the tax implications.  In regards to gifting the $100k down payment that is not a problem.  You actually are not allowed to receive a “loan” for down payment so a lender will classify it as a gift no matter what.  To keep things clean, your father in law should file a gift tax return and report the amount that is above the gift tax exemption which is $15k/person or $30k/total for the two of you.  Thus, $70k gets reported on the gift tax return.  There is no tax cost but more of a filing requirement to show the IRS how much your father in law has used up for his lifetime gift tax exemption which is now at $11M for an individual.

                The 0% interest loan is not technically allowed.  Any inter personal/family loan needs to have interest assessed.  If you do not pay him interest then your father in law should technically accrete interest meaning he reports an interest amount on his tax return even if you aren’t paying him any.  The cleaner way to do it is to pay him interest.  There are prescribed rates that you can use that the IRS reports (AFR rates).  If he wants to give it outright then gifting it might make more sense as it will be cleaner for the two of you.  Before making a final decision, looking at the cost of taking out a doctor loan may be beneficial.  I don’t recommend the 0% down doctor loan because the rates are not favorable but the 10% down loans have good terms.  BofA tends to be the most competitive in this area in my experience.  With your savings rate, mortgage on a $400k place will be very reasonable.  Hope this helps!
                Click to expand...


                More of this stuff please. Welcome to the forum.

                Comment


                • #23
                  You are young and are in a much better financial position than your peers WITHOUT the $100k gift and loan....so I wouldn't even give a second thought to getting a good deal on a potential 0% interest when it comes from a family member.  Loans and family don't tend to mix very well, despite the best of intentions.  If he's that well off and generous, then you can depend on him to gift you and the family plenty with an inheritance down the line. I'm sure he'll find a a number of ways to shower his generosity on your family during his time here on earth as well, especially once the kids come along. If your ultimate goal is to FIRE, it looks like you're already well on your way without any further assistance.

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                  • #24


                    To keep things clean, your father in law should file a gift tax return and report the amount that is above the gift tax exemption which is $15k/person or $30k/total for the two of you. Thus, $70k gets reported on the gift tax return.
                    Click to expand...


                    And if he has a MIL married to the FIL they could each gift 15K each to him and 15K each to his wife. That makes it $60K. And maybe gift $30K to his child ( depending on arrival) and can do the same next amount year without reducing FIL and MIL's lifetime gift giving of $11M.

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                    • #25
                      My position is he has enough of his own money to where receiving this "gift" doesnt put him at a monetary burden to the FIL which is what I'd be concerned about. If they get a divorce she gets the house, I mean spell these things out prior or think them through beforehand. Its not that hard.

                      If Im the dad, and I want to basically buy my kid a house, it would annoy me to have her husband refuse, etc...I understand where both are coming from. This is not really a financial decision, but a family one.

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                      • #26
                        I'm actually quite curious if people actually had the opportunity in front of them, how many would actually turn down this gift?

                        It is my belief that we would fall victim to thinking we are smart and hard working and could work out the emotions favorably.

                        however, for interesting conversation, let's play it forward.  if someone gifted you a whole house, does that mean you would retire at a younger age?  if you retired in your 40s, would your father in law's (still living let's assume) opinion of you change?  or is it just accepted when you reach a certain level of wealth, that you have demonstrated your work ethic and intelligence, and retiring at 40 to live off family money and your hard earned money is a (rich person's) cultural norm?

                         

                         

                         

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                        • #27




                          I’m actually quite curious if people actually had the opportunity in front of them, how many would actually turn down this gift?

                          It is my belief that we would fall victim to thinking we are smart and hard working and could work out the emotions favorably.

                          however, for interesting conversation, let’s play it forward.  if someone gifted you a whole house, does that mean you would retire at a younger age?  if you retired in your 40s, would your father in law’s (still living let’s assume) opinion of you change?  or is it just accepted when you reach a certain level of wealth, that you have demonstrated your work ethic and intelligence, and retiring at 40 to live off family money and your hard earned money is a (rich person’s) cultural norm?

                           

                           

                           
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                          Yeah, maybe.

                          I mean the thing is this is a young doc so presumably this is happening when things are happy and everyone is healthy. IMHO (and I'm generalizing wildly) the kind of people who offer this generosity are not scions of family money going back generations but people who have been extremely successful on their own. So then yeah the OP takes the money which does amount to a 1/2M infusion early on and if they end up retiring at 45 does he now have a FIL who is now 75 and more cantankerous and is cracking open a beer and making digs about how it "must be nice" etc etc.

                          With things like this I also always wonder about the adroitness of offering a house purchase as compared to things like college funds for grandkids, paying for family vacations, frank discussions of the estate plan etc. If I reach this level of wealth I feel like I would want to demonstrate generosity towards my kids in ways that didn't leave them so tangibly feeling in my debt. "Let's all take a week in Tahoe and I'll cover the house" is a very different project than "I'm going to buy a beautiful home for you."

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                          • #28




                            I’m actually quite curious if people actually had the opportunity in front of them, how many would actually turn down this gift?

                            It is my belief that we would fall victim to thinking we are smart and hard working and could work out the emotions favorably.

                            however, for interesting conversation, let’s play it forward.  if someone gifted you a whole house, does that mean you would retire at a younger age?  if you retired in your 40s, would your father in law’s (still living let’s assume) opinion of you change?  or is it just accepted when you reach a certain level of wealth, that you have demonstrated your work ethic and intelligence, and retiring at 40 to live off family money and your hard earned money is a (rich person’s) cultural norm?

                             

                             

                             
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                            I have turned down many gifts like this.  I think my FIL pities us because I work hard, and we lead modest lifestyles.  FIL is often offering cash for home improvements/bigger house, cars, etc.  He gave my wife’s sister a loan for their house.  At some point, people need to grow up and handle their family responsibilities on their own.  Maybe once they do that, they can go back to getting handouts from mommy and daddy.

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                            • #29




                              Also, there is nothing illegal about a 0% loan.
                              Click to expand...


                              Sadly, not true. IRS requires a minimum interest rate on family loans as Anjali above stated. Not sure how OP’s FIL would take to OP handing him a loan contract with everything stipulated out. The gift ideally would likely be better.

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                              • #30







                                I’m actually quite curious if people actually had the opportunity in front of them, how many would actually turn down this gift?

                                It is my belief that we would fall victim to thinking we are smart and hard working and could work out the emotions favorably.

                                however, for interesting conversation, let’s play it forward.  if someone gifted you a whole house, does that mean you would retire at a younger age?  if you retired in your 40s, would your father in law’s (still living let’s assume) opinion of you change?  or is it just accepted when you reach a certain level of wealth, that you have demonstrated your work ethic and intelligence, and retiring at 40 to live off family money and your hard earned money is a (rich person’s) cultural norm?

                                 

                                 

                                 
                                Click to expand…


                                I have turned down many gifts like this.  I think my FIL pities us because I work hard, and we lead modest lifestyles.  FIL is often offering cash for home improvements/bigger house, cars, etc.  He gave my wife’s sister a loan for their house.  At some point, people need to grow up and handle their family responsibilities on their own.  Maybe once they do that, they can go back to getting handouts from mommy and daddy.
                                Click to expand...


                                take the gifts you fool! 

                                you're one of the smartest guys here, and i appreciate your viewpoint.  and your mad spreadsheet skillz but that's another discussion.

                                i think there is a gap between home improvements and early retirement.  let's assume for the sake of discussion, the father in law doesn't need the money at all.  zero.  his lifestyle is not affected in the least.

                                will you turn down the eventual inheritance as well for the same reasons?  or if receiving the inheritance, not use it at all? does anyone make it on their own?  you are gifted with genetic intelligence and being born into a family and hopefully supportive environment.  you found the right spouse.  your kids will have opportunities you didn't have.  where do we draw the line between being supportive versus enabling?

                                 

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