Moved in with in-laws - Implications?

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Topic Author
corysold
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Joined: Mon Mar 24, 2014 12:58 pm

Moved in with in-laws - Implications?

Post by corysold »

I'll try to be brief in providing all details but will expand as needed.

My wife and I, and our children, sold our home. My wife's parents sold their home. We moved into a home together. The home was purchased solely in my MIL name and she is the only person on the title/mortgage. We did this as she had the credit to do it and my wife and I had a rental foreclosure from 6.5 years ago that wouldn't allow us on the mortgage at the time.

Home purchase price was $580,000. MIL put in $108,000. We gifted her $34,000 for additional down payment. We pay mortgage/taxes/insurance roughly 50/50 monthly. We pay 2/3rds of all bills, in-laws pay 1/3.

The home is perfect and things are great, but we may have gotten some bad advice. The attorney/lender who helped with the purchase suggested we could do a quitclaim deed after the sale, to put my wife on the title and a loan modification in December when the foreclosure is off my wife's record to add my wife to the loan.

My MIL met with a separate attorney about a will and he wasn't sure it would be so simple.

So now we are at a bit of an impasse and not sure what implications there may be in the future.

The idea was for my in-laws to pass the home and all equity on to us after their death, partly for helping them through their possible elder years. They have 3 other children who would split any remaining cash/vehicles etc. They have no desire to help out with elder years. FIL and MIL have totally separate finances and he signed off on any ownership at closing and doesn't want the house to pass to him if she dies first.

1. So what implications are there if my wife is quitclaimed onto the deed? I assume there are some tax issues?

2. Can we call the money we pay for our share each month a gift to my MIL, or will she need to claim that as rental income? We share a common living space and each have private bedrooms.

3. Are there any issues with passing of the home after death? Does laying this out in a will protect against other siblings having an issue with it?

4. If we do get onto the loan/title, do we claim tax/interest on taxes at equal shares to what we paid? Until we get on the loan, should my MIL claim the entire deduction, or only the portion for which she paid?

5. We each gave her $17,000 to try and minimize gift tax implications, was the the right thing to do? I'm planning on filing the gift tax form with this year's taxes, correct?

Are there other issues we should be worried about?

Again, we naively assumed it would be a simple issue after the sale, but perhaps not. Any advice is very much appreciated. She is going to further meet with her attorney, but having some ideas in place would be nice to avoid a bunch of billable hours.
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dandan14
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Re: Moved in with in-laws - Implications?

Post by dandan14 »

I can't answer all of those, but if they put it explicitly in their will that the house goes to you, I can't see why there would be an issue. Since they are the sole owners, you would receive the house at a "stepped-up value."
fabdog
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Re: Moved in with in-laws - Implications?

Post by fabdog »

this sounds complicated enough that you should consult with an attorney who deals with these issues. Before the purchase would have been ideal, but now is better than after she passes and you find out there's a flaw in the plan.

Mike
LeeMKE
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Re: Moved in with in-laws - Implications?

Post by LeeMKE »

Find a good Real Estate Attorney to advise you. You might call the title company that handled your escrow and ask them for a few names. They have plenty of experience with both attorneys who help with Real Estate issues and those who cause more harm than good.
The mightiest Oak is just a nut who stayed the course.
boglephreak
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Re: Moved in with in-laws - Implications?

Post by boglephreak »

you need to speak to an attorney and/or accountant. this is not something for internet research. some red flags i see:

1. the mortgage company may have a problem with your wife being quitclaimed on the deed without their consent. it may be considered a transfer of property and they call the mortgage.

2. i am concerned about marital property issues. what your fil says now may not be what he says years down the road, and im not sure what you mean by him signing off. did he do an interspousal deed transfer? are they legally separated, or do they just separate their finances? i am not even sure what state you live in, which changes the laws on marital property.

3. disclaiming kids from an inheritance can be tricky business and lead to estate wars that deplete estate assets. not something you want if you live in the home, but dont hold title.

i dont think any of this is a large problem though. with the right paperwork by an attorney/accountant, you can get it all worked out. putting the home in a living trust may be the best bet for your family.

good luck.
sciencenerd
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Re: Moved in with in-laws - Implications?

Post by sciencenerd »

We moved in with my in-laws a year ago, both parties selling their respective houses and buying a new house, so the situation is similar to yours. However, in our case, we bought the house in our name.

Here is what we did, and this is something you have to think about, especially if the title is transferred to you: Your in-laws should purchase a life estate in the house. This means that they will be on the title as life estate co-owners. Two reasons why this is important:

1) Having a life estate means that we can't kick them out of the house, which gives them a added level of protection. Of course, we are not planning to, otherwise we would not have gone through the process in the first place, actually costing us lots of money, but things can change when living with in-laws, and they are not always as peachy as they may seem in the honeymoon period.

2) Being on the title through the life estate, they are officially co-owners with respect to tax law. Thus, they can, for example, pay real estate taxes directly to the town, without giving the payment to us first and us having to pay taxes on them as income.

That's how we have split up the responsibilities, the in-laws pay all property taxes and propane, we pay the mortgage and the other utilities. Hopefully, when our mortgage is paid off in 3 years, we can renegotiate this agreement.

We had this done through an elder-law attorney. She said she was proud of us because we were the first family in our county setting up a life estate. However, she expects that this is something that will be far more common in the future, as aging parents with health issues need more and more help from their children.

P.S.: The life estate is a % of the property value, in our case about 15%. Possibly, the down payment that your MIL has made may be used towards the life estate, thus not counting as a gift.
Topic Author
corysold
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Re: Moved in with in-laws - Implications?

Post by corysold »

Thanks for the comments.

The Life Estate deed seems to be almost exactly what we are looking for. I will have to look into the benefits/problems and ask the attorney about it.

We are working with an attorney and accountant, I just like to have ideas to bring to them so we aren't just passive participants.

To clarify, my MIL and FIL are still married and live in the home with us, they just have separate finances, he isn't on mortgage or title and he signed paperwork at closing releasing any future ownership/interest in the home.
SimonJester
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Re: Moved in with in-laws - Implications?

Post by SimonJester »

Ewwww I see some real issues here and echo what others have said, speak to a good real estate attorney.

What is MIL or FIL end up in a nursing home and then on Medicaid, what if they run up a huge debt when they pass away, now the house is part of the estate and their creditors may way it sold to settle the estate.

What happens if MIL or FIL remarries.
"They who can give up essential liberty to obtain a little temporary safety, deserve neither liberty nor safety." - Benjamin Franklin
Leemiller
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Re: Moved in with in-laws - Implications?

Post by Leemiller »

corysold wrote:Thanks for the comments.

The Life Estate deed seems to be almost exactly what we are looking for. I will have to look into the benefits/problems and ask the attorney about it.

We are working with an attorney and accountant, I just like to have ideas to bring to them so we aren't just passive participants.

To clarify, my MIL and FIL are still married and live in the home with us, they just have separate finances, he isn't on mortgage or title and he signed paperwork at closing releasing any future ownership/interest in the home.
You need some good legal advice here. First, there are states where a spouse gets part of the marital home as a matter of state law, then there are community property states, these and other issues may or may not be relevant. I would not be comfortable with him just not being on the mortgage or title!

Also, you need elder care advice. What if one or both of them needs long term care? That home is an asset that may have to be accounted for and used to pay the costs of that care.

Honestly, it sounds like a potentially messy situation. Have there been discussions with the other siblings regarding this? Do they know the plan? You may be dealing with some hard feelings later....
Topic Author
corysold
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Joined: Mon Mar 24, 2014 12:58 pm

Re: Moved in with in-laws - Implications?

Post by corysold »

Leemiller wrote:
corysold wrote:Thanks for the comments.

The Life Estate deed seems to be almost exactly what we are looking for. I will have to look into the benefits/problems and ask the attorney about it.

We are working with an attorney and accountant, I just like to have ideas to bring to them so we aren't just passive participants.

To clarify, my MIL and FIL are still married and live in the home with us, they just have separate finances, he isn't on mortgage or title and he signed paperwork at closing releasing any future ownership/interest in the home.
You need some good legal advice here. First, there are states where a spouse gets part of the marital home as a matter of state law, then there are community property states, these and other issues may or may not be relevant. I would not be comfortable with him just not being on the mortgage or title!

Also, you need elder care advice. What if one or both of them needs long term care? That home is an asset that may have to be accounted for and used to pay the costs of that care.

Honestly, it sounds like a potentially messy situation. Have there been discussions with the other siblings regarding this? Do they know the plan? You may be dealing with some hard feelings later....
Yes, we have spoken to the siblings. All three are onboard, but it wouldn't be surprising if one changed their mind down the road.

We are working with elder care attorneys, just looking to get some more ideas and education.

A brief look into the Life Estate suggests it takes care of some of the Medicare issues and the probate issues that a will could create. I'll have to ask the attorney for more information.

Clearly we can't predict the future, but we are pretty comfortable that none of the worst case, "What if MIL dies, FIL remarries a young girl and wants the house" stuff won't happen. I guess if it does, we will have to cross that bridge.
Carefreeap
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Re: Moved in with in-laws - Implications?

Post by Carefreeap »

You have a potentially complicated situation and I'm glad that you are going to speak to an attorney about how to set up the structure correctly. just keep in mind you're not going to have a perfect set up. What might work for you and your wife may be a disservice to your MIL and vice versa.

One thing I do want to put your mind at ease about is a comment that someone made about triggering a due on sale clause with the transfer. That action is specifically prohibited under the Garn St. Germain Act. See d. 6

https://www.law.cornell.edu/uscode/text/12/1701j-3
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Topic Author
corysold
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Re: Moved in with in-laws - Implications?

Post by corysold »

Regarding my question #2 about rental income, it would appear we are in a similar situation as this thread:

viewtopic.php?t=110180

Therefore, we don't need to worry about rental income or gifts, we are simply two families sharing expenses, correct? Other bogle threads and some research seem to confirm this. Anything in our situation stick out as different?
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