Receiving house after parents pass away - legal issues with siblings?

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doss
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Receiving house after parents pass away - legal issues with siblings?

Post by doss » Thu May 03, 2018 10:27 am

I recently assisted my parents with a home purchase. I provided the down payment and they have taken over the mortgage. The plan is that when they pass, it will be given to me. My siblings were OK with all this as they will be getting other assets as stated in our parents will.

Is it a good idea to get a legal contract between myself and my parents in regards to the house? We just want to prevent any possible future issues if my siblings (or their significant others) decide to have a piece of the house once emotions run high as my parents pass away.

We are all on great terms and I don't think we will have any issues, but you just never know...read all kinds of horror stories here and elsewhere.

Is there a specific type of contract that is normally drawn up for this kind of situation? Is a will a good enough document?

Thanks

quantAndHold
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Re: Receiving house after parents pass away - legal issues with siblings?

Post by quantAndHold » Thu May 03, 2018 10:32 am

Isn’t that what a will is for?

A visit to an estate attorney might be a good idea.

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Re: Receiving house after parents pass away - legal issues with siblings?

Post by niceguy7376 » Thu May 03, 2018 10:32 am

You contributed the 20% down payment. Upon the parents passing, the loan would hopefully be less than the current 80% share.

Are you going to get the whole 100% of house value upon passing and paying off the loan?

Wouldnt your siblings want a share of their parents accrued equity?

These are the thoughts that cause friction and separations in family.

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Re: Receiving house after parents pass away - legal issues with siblings?

Post by Nate79 » Thu May 03, 2018 10:41 am

While a will may be used for this purpose understand that wills can be changed, life can change in so many ways that without some form of legal agreement you may have to write off this payment as a gift. So yes, I would investigate some type of legal agreement where the down payment you made is actually a loan to your parents.

And yes, I have seen a family ripped apart after the passing of a parent where the decision of how to handle the assets were not agreed by everyone.

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alpenglow
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Re: Receiving house after parents pass away - legal issues with siblings?

Post by alpenglow » Thu May 03, 2018 10:52 am

doss wrote:
Thu May 03, 2018 10:27 am
We are all on great terms and I don't think we will have any issues, but you just never know...read all kinds of horror stories here and elsewhere.
This arrangement doesn't sound like a good idea. You never know what will happen down the road. What happens if siblings cannot or will not make payments on the house with your equity? What happens if the value of the house is much higher or lower than anticipated compared to the "other assets" your siblings will inherit in lieu? I like the idea of a loan agreement instead.

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Re: Receiving house after parents pass away - legal issues with siblings?

Post by PugetSoundguy » Thu May 03, 2018 10:57 am

Far better to spend a little bit on a lawyer right now rather than spending lots and lots on lawyers later.

rob65
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Re: Receiving house after parents pass away - legal issues with siblings?

Post by rob65 » Thu May 03, 2018 11:05 am

What if the house doubles in value and the other assets get spent down to allow them to stay at home? That’s the type of situation that creates problems within the family.

senex
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Re: Receiving house after parents pass away - legal issues with siblings?

Post by senex » Thu May 03, 2018 11:08 am

It's good you're thinking ahead about this.

As previously mentioned, a Will can contain arbitrary assignments -- it can give you 20% of the value of the home with the rest is split equally; or give you a fixed $X with the rest of the home equity split equally; etc.

If you structure your money as a "loan" to them, you might need to look into the IRS's AFR interest rates https://www.investopedia.com/terms/a/ap ... alrate.asp. (If you charge a family member less than the AFR interest rate, then the IRS may classify your loan as a gift -- and I have no idea if that affects the executor's treatment of your "loan"). As I type that, it makes me think a loan is unduly complicated in this situation, compared to the will. Make sure your parents tell everyone about this ahead of time -- surprises in the Will are stressful for all.

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Watty
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Re: Receiving house after parents pass away - legal issues with siblings?

Post by Watty » Thu May 03, 2018 11:17 am

Talking with a lawyer would probably be a good idea.

In some, but not all states, a title of a house can have a transfer on death(TOD) designation where the house will automatically be transferred to you after they die. The house could also be put into a trust that designates what happens to it when they die.

What to do may also depend on how large of an estate it is. We have no idea if they have a net worth of a million dollars or if they just bought a $60,000 bungalow in a low cost of living area and are basically living on Social Security.

Using just a will might not work well since there may be complications that you are not expecting like if they they decide to move to an apartment or condo because taking care of the house is too much work. They could also spend down there other assets so there is not much left for the siblings but there is still significant home equity. They could also do things like get home equity loans or a reverse mortgage so you might not inherit much when that time comes.

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Flobes
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Re: Receiving house after parents pass away - legal issues with siblings?

Post by Flobes » Thu May 03, 2018 11:27 am

Get it in writing, documented in legalese.

A cautionary tale:
* My sister helped my mother buy her condo.
* We three had an understanding about how, upon my mothers death, that condo would transfer.
* Condo would become my sister's, and I'd be otherwise compensated from the estate for my mother's equity.
* The morning after my mother's funeral, my brother-in-law, a greedy man, commanded a different plan.
* His strategy: My sister would get the condo bcz her money was in it, and I would get nothing.
* My sister never defies him.
* Sister and I were co-executors.
* After much angst and more than a year and thousands of dollars spent on lawyers, I walked away.
* Sister and I (raised in a tight loving family) are permanently estranged.
* Moral Of The Story One: Life is too long to carry the burdens of wicked people. Best to simply move on.
* Moral Of The Story Two: Commit financial agreements to writing, so it's codified and clear to everyone.

Jill07
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Re: Receiving house after parents pass away - legal issues with siblings?

Post by Jill07 » Thu May 03, 2018 11:34 am

Maybe there won't be a house to inherit. It might need to be sold to pay for long term care? Might be too late for this, but if you want the house appreciation, why not have the house & mortgage in your name & rent it to your parents?

If the house appreciates dramatically by the time you "inherit" it, I think your siblings will think it unfair that you solely benefit from that appreciation. (and don't expect any help cleaning out the house).

How will you and your siblings decide which assets get spent down first to pay for your parents care? Do you sell the house (your asset) or spend what is in the bank (their assets)? What if the house needs a new roof or other major work? Where should that money come from?

Don't under estimate the hurt/angry feelings when settling an estate and providing care for elderly parents.

Jack FFR1846
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Re: Receiving house after parents pass away - legal issues with siblings?

Post by Jack FFR1846 » Thu May 03, 2018 11:37 am

Question #1: Why were your parents unable to come up with 20% on their own?
Question #2: Why are your parents buying a house they can't afford?

I would suggest structuring a loan and have your parents pay you in monthly payments. Otherwise, you've given a gift to your siblings, worst case.
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grkmec
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Re: Receiving house after parents pass away - legal issues with siblings?

Post by grkmec » Thu May 03, 2018 11:43 am

Agree with most of the above posts to proceed with caution. If you are providing the downpayment, I would put the house in your name, and then execute a long term lease with your parents so they pay mortgage, taxes, upkeep, etc. Like a triple net lease arrangement. That way you side step the whole inheritance issue.

DesertDiva
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Re: Receiving house after parents pass away - legal issues with siblings?

Post by DesertDiva » Thu May 03, 2018 11:48 am

Everything should be in writing and documented, regardless of how well everyone is getting along in the moment. Hopefully your experience won't be difficult, but the shrewd thing to do is make sure your I's are dotted and your T's are crossed so there is no ambiguity or confusion.

After the passing of parents or grandparents, money can do very funny things to people and change family dynamics in ways you never expected to see.

bltn
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Re: Receiving house after parents pass away - legal issues with siblings?

Post by bltn » Thu May 03, 2018 12:31 pm

It is amazing how often conflicts in families develop on the settlement of an estate. Even over relatively small matters.
As much clarification on bequests as possible will be appreciated.

Yiewsley
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Re: Receiving house after parents pass away - legal issues with siblings?

Post by Yiewsley » Thu May 03, 2018 2:32 pm

Can’t the estate pay you back the down payment and then split what’s left equally with the siblings?

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dm200
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Re: Receiving house after parents pass away - legal issues with siblings?

Post by dm200 » Thu May 03, 2018 3:12 pm

Seems to me a bad idea:

1. No assurance the house (net) will have any value in the future - real estate values and need to use home value for medical/health care.

2. Value could go up a lot - then inequity with siblings

I suggest parents do wills treating all siblings fairly and the wills include the house. Just have the wills leave OP $X less representing the downpayment paid.

Gill
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Re: Receiving house after parents pass away - legal issues with siblings?

Post by Gill » Thu May 03, 2018 4:34 pm

You said you provided the down payment. Why complicate things with regard to the eventual disposition of the house? If your parents simply gave you a demand note for the amount of the down payment, wouldn't that cover it?
Gill

Jags4186
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Re: Receiving house after parents pass away - legal issues with siblings?

Post by Jags4186 » Thu May 03, 2018 4:37 pm

You should arrange to have the house titled in joint tenancy with rights of survivorship. If they pass the house will pass directly to you and be separate from probate.

WhiteMaxima
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Re: Receiving house after parents pass away - legal issues with siblings?

Post by WhiteMaxima » Thu May 03, 2018 4:38 pm

You put 20% down but your parents pay principle and interest and you want the equity of the house goes to you. Am I understand right?

Gill
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Re: Receiving house after parents pass away - legal issues with siblings?

Post by Gill » Thu May 03, 2018 4:40 pm

Jags4186 wrote:
Thu May 03, 2018 4:37 pm
You should arrange to have the house titled in joint tenancy with rights (sic) of survivorship. If they pass the house will pass directly to you and be separate from probate.
...and why would he want this? Say that when he inherits it the house is worth less than the mortgage, "underwater" as they say? Not only does he inherit nothing, he has lost his down payment and owes the deficiency to the bank. Doesn't my idea of simply having a note for the down payment make more sense?
Gill

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Re: Receiving house after parents pass away - legal issues with siblings?

Post by Gill » Thu May 03, 2018 4:42 pm

WhiteMaxima wrote:
Thu May 03, 2018 4:38 pm
You put 20% down but your parents pay principle (sic) and interest and you want the equity of the house goes to you. Am I understand right?
There may be no equity. See my post above.
Gill

rob65
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Re: Receiving house after parents pass away - legal issues with siblings?

Post by rob65 » Thu May 03, 2018 4:47 pm

WhiteMaxima wrote:
Thu May 03, 2018 4:38 pm
You put 20% down but your parents pay principle and interest and you want the equity of the house goes to you. Am I understand right?
In fairness, my reading was that the siblings will get other assets that will equal everything out. The complication, in my opinion, is that what looks like it equals out now might not equal out in the future.

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Epsilon Delta
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Re: Receiving house after parents pass away - legal issues with siblings?

Post by Epsilon Delta » Thu May 03, 2018 4:49 pm

Various posters have suggested various ways this could be structured. You could also be treated as owning a portion of the house. Different approaches have different results if something doesn't go as planned. You really need to decide what you want, and since you've already done it, what you have already done. Ideally you would have decided what you want to do and consulted a lawyer before you did it. Next best thing is to decide what you intended to do and get to a lawyer now and see how close you can get to what you wanted.

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Re: Receiving house after parents pass away - legal issues with siblings?

Post by Jags4186 » Thu May 03, 2018 4:53 pm

Gill wrote:
Thu May 03, 2018 4:40 pm
Jags4186 wrote:
Thu May 03, 2018 4:37 pm
You should arrange to have the house titled in joint tenancy with rights (sic) [sic] of survivorship. If they pass the house will pass directly to you and be separate from probate.
...and why would he want this? Say that when he inherits it the house is worth less than the mortgage, "underwater" as they say? Not only does he inherit nothing, he has lost his down payment and owes the deficiency to the bank. Doesn't my idea of simply having a note for the down payment make more sense?
Gill
It would if that’s what he intended, to only get back the 20% he outlayed. If the intent was for him to get the house afterwards, this would allow that. The parents should then split their remaining assets equally, or however they want, between all the siblings including the OP. There is opportunity cost and risk for the OP providing his parents with a 20% downpayment. He could either lose his investment or be richly rewarded.
Last edited by Jags4186 on Thu May 03, 2018 5:06 pm, edited 1 time in total.

Gill
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Re: Receiving house after parents pass away - legal issues with siblings?

Post by Gill » Thu May 03, 2018 4:53 pm

My suggestion is clearcut and simple. Treat the down payment as a loan and get a note for it which can be satisfied out of the estate and the remaining assets split according to the will. No muss, no fuss and no attorney fees.
Gill

dbr
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Re: Receiving house after parents pass away - legal issues with siblings?

Post by dbr » Thu May 03, 2018 5:08 pm

Gill wrote:
Thu May 03, 2018 4:53 pm
My suggestion is clearcut and simple. Treat the down payment as a loan and get a note for it which can be satisfied out of the estate and the remaining assets split according to the will. No muss, no fuss and no attorney fees.
Gill
Yes, or if the idea is that for some reason the OP should get the house maybe he should own the house all along and rent it to the parents for enough to pay the mortgage, insurance, and taxes. Also, then the equity will not have to go to public assistance if it ever comes to that. If this is done now years ahead of everything that might happen there should be little problem. Also the siblings should not mind as the OP is paying out for everything and the rental income to him would seem fair. This should have nothing to do with how other assets are handed down.

DetroitRick
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Re: Receiving house after parents pass away - legal issues with siblings?

Post by DetroitRick » Thu May 03, 2018 5:44 pm

I was doing some estate planning over the past week, and ran across something called a Transfer on Death Instrument, that may interest you. It transfers real estate title on death. It's just a mechanism, not a true solution to your potential conflict concerns, but may still be of interest. Some states allow it, some do not (for example Michigan does not, but Illinois does).

We are considering use in Illinois, and are meeting with attorney in 2 weeks to discuss (in Illinois an attorney must prepare, or so I've heard). But we also don't have potential for sibling issues.

Here's a link to a clear article on the matter from the Illinois Bar Association, if you are interested:

https://www.isba.org/ibj/2011/12/thetra ... entcomesto

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Re: Receiving house after parents pass away - legal issues with siblings?

Post by gunn_show » Thu May 03, 2018 6:46 pm

Jack FFR1846 wrote:
Thu May 03, 2018 11:37 am
Question #1: Why were your parents unable to come up with 20% on their own?
Question #2: Why are your parents buying a house they can't afford?

I would suggest structuring a loan and have your parents pay you in monthly payments. Otherwise, you've given a gift to your siblings, worst case.
Of all the current responses, this one piques my curiosity the most. Both questions are very relevant to the whole story, and I agree with Jack in that regard. OP is the one in his/her family that has ponied up the down payment, which perhaps no other sibling can provide. Lot of risk. Should come with a more secure reward at the end.

I would get this in much better writing in the will and trust, carve it out appropriately. Who knows the value or situation when that day comes. There is no supporting data telling us whether parents may live 2 more years or 20, and things can go sideways in myriad ways in between those years, as many other comments have outlined.
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NotWhoYouThink
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Re: Receiving house after parents pass away - legal issues with siblings?

Post by NotWhoYouThink » Thu May 03, 2018 7:27 pm

Of all the current responses, this one piques my curiosity the most. Both questions are very relevant to the whole story, and I agree with Jack in that regard. OP is the one in his/her family that has ponied up the down payment, which perhaps no other sibling can provide. Lot of risk. Should come with a more secure reward at the end.
Maybe OP is the only one that thought giving the parents the down payment money was smart. Maybe other siblings thought buying a house, or that house, was a bad idea. Maybe they think the parents can't afford that or shouldn't live there.

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Re: Receiving house after parents pass away - legal issues with siblings?

Post by LadyGeek » Thu May 03, 2018 7:57 pm

I removed several posts and replies which were in disagreement on (mis)quoting of a member's post. The discussion was getting derailed.

Please stay on-topic.
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Re: Receiving house after parents pass away - legal issues with siblings?

Post by Stvr » Thu May 03, 2018 8:30 pm

Listen to Flobes sage advice. I've been through it with my brothers.

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Re: Receiving house after parents pass away - legal issues with siblings?

Post by RickBoglehead » Fri May 04, 2018 7:11 am

doss wrote:
Thu May 03, 2018 10:27 am
I recently assisted my parents with a home purchase. I provided the down payment and they have taken over the mortgage. The plan is that when they pass, it will be given to me. My siblings were OK with all this as they will be getting other assets as stated in our parents will.

Is it a good idea to get a legal contract between myself and my parents in regards to the house? We just want to prevent any possible future issues if my siblings (or their significant others) decide to have a piece of the house once emotions run high as my parents pass away.

We are all on great terms and I don't think we will have any issues, but you just never know...read all kinds of horror stories here and elsewhere.

Is there a specific type of contract that is normally drawn up for this kind of situation? Is a will a good enough document?

Thanks
What does "they have taken over the mortgage" mean? Is the mortgage in their name or yours? Is the home titled in your name or theirs, or jointly, or are you on the deed with right of survivorship? If you're in Florida, Michigan, or Texas, and the home is in their names, a Lady Bird deed would suit your needs.

Keep in mind that if they own the house and it's transferred to you on death via TOD or Lady Bird deed or will, then the basis in the house climbs to the value on their death. However, if you jointly own the house with them, then only their part of the basis goes up, yours does not.

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Re: Receiving house after parents pass away - legal issues with siblings?

Post by Gill » Fri May 04, 2018 10:23 am

RickBoglehead wrote:
Fri May 04, 2018 7:11 am
Keep in mind that if they own the house and it's transferred to you on death via TOD or Lady Bird deed or will, then the basis in the house climbs to the value on their death. However, if you jointly own the house with them, then only their part of the basis goes up, yours does not.
That's incorrect. In either case there is a full stepup in basis when the parents acquired the house and placed it in joint name with the son.
Gill

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Re: Receiving house after parents pass away - legal issues with siblings?

Post by RickBoglehead » Fri May 04, 2018 2:11 pm

Gill wrote:
Fri May 04, 2018 10:23 am
RickBoglehead wrote:
Fri May 04, 2018 7:11 am
Keep in mind that if they own the house and it's transferred to you on death via TOD or Lady Bird deed or will, then the basis in the house climbs to the value on their death. However, if you jointly own the house with them, then only their part of the basis goes up, yours does not.
That's incorrect. In either case there is a full stepup in basis when the parents acquired the house and placed it in joint name with the son.
Gill
Maybe we're saying the same thing.

Option 1:

1) Parents buy house for $450,000.
2) Parents add son to house as joint owner. Each owns 1/3, $150,000 in cost.
3) Parents pass away 3 years later, on the same day, house is worth $600,000. Because it was jointly owned by 3 people, 2/3 of the value gets increased, 1/3 does not. Cost basis for son now is $200,000 + $200,000 + $150,000 = $550,000.

Option 2:

1) Parents buy house for $450,000, setup TOD, Lady Bird deed.
2) Parents pass away 3 years later, on same day, house is worth $600,000. Cost basis for son is $600,000.

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Re: Receiving house after parents pass away - legal issues with siblings?

Post by Gill » Fri May 04, 2018 3:42 pm

RickBoglehead wrote:
Fri May 04, 2018 2:11 pm
Gill wrote:
Fri May 04, 2018 10:23 am
RickBoglehead wrote:
Fri May 04, 2018 7:11 am
Keep in mind that if they own the house and it's transferred to you on death via TOD or Lady Bird deed or will, then the basis in the house climbs to the value on their death. However, if you jointly own the house with them, then only their part of the basis goes up, yours does not.
That's incorrect. In either case there is a full stepup in basis when the parents acquired the house and placed it in joint name with the son.
Gill
Maybe we're saying the same thing.

Option 1:

1) Parents buy house for $450,000.
2) Parents add son to house as joint owner. Each owns 1/3, $150,000 in cost.
3) Parents pass away 3 years later, on the same day, house is worth $600,000. Because it was jointly owned by 3 people, 2/3 of the value gets increased, 1/3 does not. Cost basis for son now is $200,000 + $200,000 + $150,000 = $550,000.

Option 2:

1) Parents buy house for $450,000, setup TOD, Lady Bird deed.
2) Parents pass away 3 years later, on same day, house is worth $600,000. Cost basis for son is $600,000.
No, in both cases there is a full stepup. Adding the son as joint owner does not remove the value of the house from the parents' estates and therefore there is a full stepup in either example. This is a common misunderstanding. It should be noted, your example is correct as between spouses but not otherwise.
Gill

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