Adding Mother-in-law to joint account?

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ChiKid24
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Adding Mother-in-law to joint account?

Post by ChiKid24 »

My mother-in-law is looking to buy a new condo in a 55+ retirement community. The monthly HOA is pricey ($500+) and as such there are strict income/asset qualifications she must meet to be approved to purchase in the community. Essentially she needs to show assets equal to the purchase price of the condo plus $150k in order to be approved. Unfortunately she isn't able to meet the requirement on her own, as her only real asset is the equity in her current home which won't be on the market until later this year.

I offered to help her out and have a couple of options to consider.
1) Send her cash to cover the shortfall. I could do this in the form of a low interest loan. Downside is it would require selling some positions in my taxable investment account and taking a tax hit.
2) Add her as a joint owner to my taxable brokerage account. She would get credit for 50% of the assets which would more than qualify her, and I wouldn't have to sell anything to make it happen.

I'm leaning to #2 for simplicity but wondering if there are any unforeseen consequences (tax/other) that I'm not considering. I trust her implicitly and can create a separate agreement between us saying she disclaims all rights to control and ownership of the account. This would be to keep 50% of the assets from transferring to her estate if she were to pass, and keep 100% of the assets with my estate should I pass. This would be a short-term solution as she only needs to show proof to qualify for the purchase. Once that happens, I can take her off the account.

Would love the thoughts of the smart people on this forum. Thanks!
TN_Boy
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Re: Adding Mother-in-law to joint account?

Post by TN_Boy »

ChiKid24 wrote: Mon Jan 06, 2020 8:29 pm My mother-in-law is looking to buy a new condo in a 55+ retirement community. The monthly HOA is pricey ($500+) and as such there are strict income/asset qualifications she must meet to be approved to purchase in the community. Essentially she needs to show assets equal to the purchase price of the condo plus $150k in order to be approved. Unfortunately she isn't able to meet the requirement on her own, as her only real asset is the equity in her current home which won't be on the market until later this year.

I offered to help her out and have a couple of options to consider.
1) Send her cash to cover the shortfall. I could do this in the form of a low interest loan. Downside is it would require selling some positions in my taxable investment account and taking a tax hit.
2) Add her as a joint owner to my taxable brokerage account. She would get credit for 50% of the assets which would more than qualify her, and I wouldn't have to sell anything to make it happen.

I'm leaning to #2 for simplicity but wondering if there are any unforeseen consequences (tax/other) that I'm not considering. I trust her implicitly and can create a separate agreement between us saying she disclaims all rights to control and ownership of the account. This would be to keep 50% of the assets from transferring to her estate if she were to pass, and keep 100% of the assets with my estate should I pass. This would be a short-term solution as she only needs to show proof to qualify for the purchase. Once that happens, I can take her off the account.

Would love the thoughts of the smart people on this forum. Thanks!
I'm not a lawyer. Neither of your options sound, well, legal. If the money is loaned to her, it's not an asset. If you put on her a joint account with a separate agreement that it's not .... actually joint then it is not her asset either.

Can she sell the house and move into an apartment while waiting for the new condo?

Will she have the money to afford the 6k in annual HOA fees plus buying the condo plus other living expenses? Forget the condo price + 150K (at least for your analysis). Can she afford this?
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CAsage
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Re: Adding Mother-in-law to joint account?

Post by CAsage »

I like option 3. She waits until she sells her current home, and chooses a new condo she can afford. What's the rush? And option 2 is so fraught with legal peril.... you would effectively be making her a legal gift of 1/2 that account, so you would have to report that and offset it from your estate gifting whatchamacallit. And ... things could go wrong despite your best understanding, trust, and intent. Never #2.
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Misenplace
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Re: Adding Mother-in-law to joint account?

Post by Misenplace »

Hi ChiKid24! Welcome, and we are glad that you asked before doing something like this.
#2 is a very, very, very bad idea on so many levels. I'll throw out a couple of non-exhaustive reasons.

First, putting her as a co-owner on the account is a gift of 50% of the amount of the account at the time you do it. If that gift amount is over, I believe, $15,000, then you have reporting requirements to the IRS that will reduce the amount of your estate exclusion by that amount.

Second, should anything happen to you (accidents do happen all the time), then your taxable account is now owned by your MIL. Yes, your parents, your wife, your relatives are out of luck. It's MIL's money, since you gave it to her. So legally it is hers forever, or her new husband gets your hard earned money, not your heirs.

Third, there is nothing to stop MIL from spending your account- since it is her account too.

Fourth, presumably you think she will gift it back once she gets into the +55 community. If so, the whole set-up would be viewed as a fraudulent transaction by the +55 community, and she may lose her position. On the other hand, if she doesn't gift it back, you really have no recourse because it's a sham/fraudulent transaction. There's something called the doctrine of 'unclean hands'- where you can't ask the courts for redress when you were part of the sham transaction. This 4th point is probably the main reason you should forget about naming her on your accounts.

Fifth, IF and when she gifts it back to you, she will have reporting obligations to the IRS and will also have to reduce her estate exclusion.

Sixth, the whole situation will be seen as a fishy situation by anyone looking at either of your returns or accounts (IRS, +55 community, etc.).

Above 6 reasons are just off the top of my head. I'm sure there are many more reasons why you should. not. do. this. Don't!

If you did #1 (i.e., give her a low interest loan), that may also trigger gift filing requirements- essentially, the difference in interest between a market rate loan and the loan you give MIL would be a gift to MIL that need to be reported if it was over $15K. If you and your wife do it together, you can give your MIL $30,000 per year in gifts before triggering reporting requirements to the IRS. The #1 loan is worlds better than #2. Regardless, you should not be defrauding the +55 community into thinking it is a gift rather than, as you say, a loan.

However, I would recommend that your MIL sell her house, and if necessary, bunk with you until she has the assets to get into the +55 retirement on the up-and-up and her own assets.
260chrisb
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Re: Adding Mother-in-law to joint account?

Post by 260chrisb »

Bad idea. Your MIL needs to move into something SHE can afford. What's keeping her from simply selling her house and then buying the condo?
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Mlm
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Re: Adding Mother-in-law to joint account?

Post by Mlm »

I would consult an attorney before considering either of these options. I'm not an attorney but I have these concerns.
ChiKid24 wrote: Mon Jan 06, 2020 8:29 pm 1) Send her cash to cover the shortfall. I could do this in the form of a low interest loan. Downside is it would require selling some positions in my taxable investment account and taking a tax hit.
I'm not sure a low interest loan would conform to IRS guidelines and I would want to file a formal lien against the property in case she got hit by a truck

2) Add her as a joint owner to my taxable brokerage account. She would get credit for 50% of the assets which would more than qualify her, and I wouldn't have to sell anything to make it happen. Oh heavens NO ! What if she had a bad car accident or was found liable for some future debt. There goes half of your account out the window

Freetime76
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Re: Adding Mother-in-law to joint account?

Post by Freetime76 »

CAsage wrote: Mon Jan 06, 2020 8:57 pm I like option 3. She waits until she sells her current home, and chooses a new condo she can afford. What's the rush? And option 2 is so fraught with legal peril.... you would effectively be making her a legal gift of 1/2 that account, so you would have to report that and offset it from your estate gifting whatchamacallit. And ... things could go wrong despite your best understanding, trust, and intent. Never #2.
Me, too. Too many ways options 1 and 2 can go sideways - spent money in the account, misrepresentation to 55+ community, creditors go after it, somebody dies or becomes disabled, Medicaid’s 5+ year lookback...all for less than 1 year’s time waiting.

I’m not sure if other documents including a will would trump the account designation at the brokerage firm (joint tenancy? tenants in common? or whichever). Also, is this 150K is a significant % of your and your spouse’s assets, it magnifies any risk.

Usually, -ok 100% of the time - when family is generously offering to help me out with a lot of money, I am better off just being patient. This includes a sizeable home “loan” because my house hasn’t sold yet and a suitable property is for sale. It’s nice to offer to swoop in and help, but I’ve found it’s best to waist.

ETA: Dumb question to ask: *why* is the asset requirement in place? To support more advanced care? Periodic Special Assessments in addition to the pricey HOA fees? Is this putting your MIL into too expensive a place?
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Re: Adding Mother-in-law to joint account?

Post by BarbBrooklyn »

The 6th reason not to do it has to do with Medicaid eligibility and the 5 year look back.

Don't do ANY of these things until you've consulted an eldercare attorney.
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Katietsu
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Re: Adding Mother-in-law to joint account?

Post by Katietsu »

I agree that the best answer might be to avoid this whole mess and wait until she sells her house.

If this is really important to you, I might consider talking to an attorney about having her sell you her home or a share of the home. Make sure you would consider any tax consequences.
Freetime76
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Re: Adding Mother-in-law to joint account?

Post by Freetime76 »

Katietsu wrote: Mon Jan 06, 2020 9:29 pm I agree that the best answer might be to avoid this whole mess and wait until she sells her house.

If this is really important to you, I might consider talking to an attorney about having her sell you her home or a share of the home. Make sure you would consider any tax consequences.
That’s an idea...because essentially it’s what you’re doing. And if you and your spouse would reject this idea (buying a share in the house), then that tells you not to do any joint account or loan business either.
ohai
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Re: Adding Mother-in-law to joint account?

Post by ohai »

CAsage wrote: Mon Jan 06, 2020 8:57 pm I like option 3. She waits until she sells her current home, and chooses a new condo she can afford. What's the rush? And option 2 is so fraught with legal peril.... you would effectively be making her a legal gift of 1/2 that account, so you would have to report that and offset it from your estate gifting whatchamacallit. And ... things could go wrong despite your best understanding, trust, and intent. Never #2.
I, ohai, endorse this comment.

Also, maybe it is a culture thing, but I find it weird that people are willing to do weird transitory financial stuff like this with MIL, but didn't mention just having her live with them, even on a temporary basis until she satisfies the community financial requirements.
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Re: Adding Mother-in-law to joint account?

Post by Brianmcg321 »

260chrisb wrote: Mon Jan 06, 2020 8:58 pm Bad idea. Your MIL needs to move into something SHE can afford. What's keeping her from simply selling her house and then buying the condo?
This x100
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rj342
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Re: Adding Mother-in-law to joint account?

Post by rj342 »

Brianmcg321 wrote: Tue Jan 07, 2020 10:26 am
260chrisb wrote: Mon Jan 06, 2020 8:58 pm Bad idea. Your MIL needs to move into something SHE can afford. What's keeping her from simply selling her house and then buying the condo?
This x100
And the way to help her out then is to let her live with you in the interim, between moving out so her empty/staged condo can be shown, to sell more quickly, and getting the new one. And if she has to lower her sights a bit, so be it.

That costs you nothing more than a bit of inconvenience,w no real risk.
Topic Author
ChiKid24
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Re: Adding Mother-in-law to joint account?

Post by ChiKid24 »

Hi all. OP here. Thanks so much for your thoughts on this. You definitely brought up a bunch of things I hadn't considered and I'm going to consult with a lawyer before moving forward on anything. That said, I think it would be helpful to provide a few more facts on the situation to provide a more complete overview and give you a better idea why I'm even considering this.

The condo my MIL is looking at would be a downsizing. Purchase price is only ~$200k and she has about $400k equity in her existing home. So I'm very comfortable that she is looking at something she can afford. She would likely buy it outright with cash and still have plenty of money remaining to live off of and cover the condo expenses, including the high HOA.

The tricky part of her situation is the silly tests for this particular HOA. There is an income and an asset test, meaning her income has to be at a certain level and her assets have to hit that purchase price + $150k threshold I previously mentioned. I'm not quite sure why that asset threshold is so high. $150k cushion seems exorbitant to me as it would cover HOA fees for 20+ years! The real estate agent familiar with the community says everyone agrees the test thresholds are silly. She said the HOA only reviews the paperwork to see if she qualifies to buy in the neighborhood and there isn't any further annual reviews.

Additionally, my MIL went through some serious health issues this year (stage 3 cancer) and had to undergo 9 rounds of chemo, which she just completed. As such, she hasn't been able to work her normal schedule (she is a stay at home therapist/consultant). Fortunately, she found a renter for her current home in northern california and is living with us already in southern california. This has been great because all of her family is down here so we can be close to her while she recovers from her treatments. The condo complex is perfect for people her age and is only a 20 minute drive from our house.

The rental income she is receiving on her current place helps her meet the income test, but she can't count the home as an asset since she's using it for the income test. If she sells the home she will meet the asset test, but won't have the rental income to qualify under the income test. So waiting to sell her current home doesn't actually solve the problem because of the test thresholds. I could easily buy the condo outright, but I'm not allowed to because I'm not 55+. All and all a very frustrating situation and something I'm trying to think through creatively to find a solution.

Thanks again for everyone's help in bringing up issues and concerns.
TN_Boy
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Re: Adding Mother-in-law to joint account?

Post by TN_Boy »

ChiKid24 wrote: Tue Jan 07, 2020 11:49 am Hi all. OP here. Thanks so much for your thoughts on this. You definitely brought up a bunch of things I hadn't considered and I'm going to consult with a lawyer before moving forward on anything. That said, I think it would be helpful to provide a few more facts on the situation to provide a more complete overview and give you a better idea why I'm even considering this.

The condo my MIL is looking at would be a downsizing. Purchase price is only ~$200k and she has about $400k equity in her existing home. So I'm very comfortable that she is looking at something she can afford. She would likely buy it outright with cash and still have plenty of money remaining to live off of and cover the condo expenses, including the high HOA.

The tricky part of her situation is the silly tests for this particular HOA. There is an income and an asset test, meaning her income has to be at a certain level and her assets have to hit that purchase price + $150k threshold I previously mentioned. I'm not quite sure why that asset threshold is so high. $150k cushion seems exorbitant to me as it would cover HOA fees for 20+ years! The real estate agent familiar with the community says everyone agrees the test thresholds are silly. She said the HOA only reviews the paperwork to see if she qualifies to buy in the neighborhood and there isn't any further annual reviews.

Additionally, my MIL went through some serious health issues this year (stage 3 cancer) and had to undergo 9 rounds of chemo, which she just completed. As such, she hasn't been able to work her normal schedule (she is a stay at home therapist/consultant). Fortunately, she found a renter for her current home in northern california and is living with us already in southern california. This has been great because all of her family is down here so we can be close to her while she recovers from her treatments. The condo complex is perfect for people her age and is only a 20 minute drive from our house.

The rental income she is receiving on her current place helps her meet the income test, but she can't count the home as an asset since she's using it for the income test. If she sells the home she will meet the asset test, but won't have the rental income to qualify under the income test. So waiting to sell her current home doesn't actually solve the problem because of the test thresholds. I could easily buy the condo outright, but I'm not allowed to because I'm not 55+. All and all a very frustrating situation and something I'm trying to think through creatively to find a solution.

Thanks again for everyone's help in bringing up issues and concerns.
We don't know the details on the 55+ community requirements.

But we also don't have any idea from what you've posted whether she can afford to live there or not, though obviously you think so.

She sells the house and buys the condo, probably leaving her with 150k to 175k after selling costs, moving costs etc etc. Is that absolutely the only savings she has -- equity in the existing house?

Now she has 6k in yearly HOA fees to pay, plus her other living expenses. Utilities, food, travel, home repairs, property taxes and so forth. You cannot withdraw much from 150k per year.

If she is not working now and her total assets after buying the condo are only 150k or so, I understand why the 55+ community might think she cannot afford it. I mean, at the moment she literally cannot afford it!

Do you *know* she will be able to go back to work and pull in the same income? Especially if she moves and has to rebuild a therapist practice. This sounds like an important assumption that you are making.

If she cannot get back to her previous income level, how will she be able to afford to live there? You are assuming all will go well. The community setting the (possibly silly requirements) has probably seen things go wrong that people assured them wouldn't happen.

Would her previous income have easily fulfilled the requirements? If she can't work again (or makes less) what is the SS situation?

My point of course is that reading your description of the situation doesn't reassure me that she can afford this place, as it assumes good things happening in the future which may or may not occur.
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FlyAF
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Re: Adding Mother-in-law to joint account?

Post by FlyAF »

If 400k in home equity is the entirety of her net worth, she absolutely cannot afford the place. What are we missing here?
ohai
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Re: Adding Mother-in-law to joint account?

Post by ohai »

I don't think that asset threshold is unreasonable. It covers HOA, but people have other living costs too.
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Re: Adding Mother-in-law to joint account?

Post by RickBoglehead »

ChiKid24 wrote: Tue Jan 07, 2020 11:49 am The tricky part of her situation is the silly tests for this particular HOA. There is an income and an asset test, meaning her income has to be at a certain level and her assets have to hit that purchase price + $150k threshold I previously mentioned. I'm not quite sure why that asset threshold is so high. $150k cushion seems exorbitant to me as it would cover HOA fees for 20+ years! The real estate agent familiar with the community says everyone agrees the test thresholds are silly.
Maybe they're ensuring that people moving in can pay the HOA fees AND maintain upkeep on their units?
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mhadden1
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Re: Adding Mother-in-law to joint account?

Post by mhadden1 »

The Gordian knot preventing MIL's purchase means that she doesn't have enough money to buy. And yes,the OP could cut through the knot by giving MIL a lot of money.

I think in most cities MIL could use her available resources to rent an appropriate apartment to live in, and maybe purchase something later.
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Re: Adding Mother-in-law to joint account?

Post by BarbBrooklyn »

This person, who currently is not working, has a total of 400K in assets. No savings, no retirement plan, no pension.

How old is she? Is she currently drawing SS, or eligible?

I'm wondering how you think the income/asset test is "silly"; if you think of a safe withdrawal rate of 4% on the 200K she'll have left after purchase, she has an income stream of 8K per year to spend on HOA, food, healthcare, transportation. She can't afford this purchase. Maybe there are other financials that are not included in your posts.
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Carefreeap
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Re: Adding Mother-in-law to joint account?

Post by Carefreeap »

ChiKid24 wrote: Tue Jan 07, 2020 11:49 am I could easily buy the condo outright, but I'm not allowed to because I'm not 55+.
Are you sure you can't own the condo and not just occupy the unit if you're under 55? If that's the case no one could inherit a unit in that complex who is under 55. Please double check the CC&Rs because it seems odd.

BTW I'm not advocating buying the unit. There are a host of other problems taking this course of action. But cross one bridge at a time.
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delamer
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Re: Adding Mother-in-law to joint account?

Post by delamer »

If you can easily buy the condo outright, then gift her the money to do so with the proviso that you and/or your spouse would be her heir for the condo.
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Re: Adding Mother-in-law to joint account?

Post by WhiteMaxima »

Don't do it. What if divorce?
TN_Boy
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Re: Adding Mother-in-law to joint account?

Post by TN_Boy »

delamer wrote: Tue Jan 07, 2020 3:41 pm If you can easily buy the condo outright, then gift her the money to do so with the proviso that you and/or your spouse would be her heir for the condo.
True, but now we've moved from the OP using questionable tactics to inflate MIL's financial resources on paper to partially supporting her.

The OP didn't ask, but perhaps should (granted I might be overstepping here ...), how should his MIL get her financial house in order, after recovering from her medical issues?
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