Purchasing MIL's home as she moves to 55+ community: best practices

Non-investing personal finance issues including insurance, credit, real estate, taxes, employment and legal issues such as trusts and wills
Post Reply
Topic Author
coalcracker
Posts: 604
Joined: Sat Feb 04, 2012 12:25 pm

Purchasing MIL's home as she moves to 55+ community: best practices

Post by coalcracker »

My widowed MIL is nearing 80 and, while in good health, has expressed the desire to move to a 55+ community (with option of future assisted living) in the next 3-5 years. She own's her current home with a mortgage. She will need the proceeds of her home sale in order to pay the "entrance fee" of several hundred thousand dollars at her future community.

My wife and I love her house and the neighborhood/city in which she lives, and would consider retiring there in about 10-15 years. While we haven't broached details, we've expressed interest in buying or otherwise transferring ownership of the house to us when she moves. We live a few hours away and would likely rent the house until the time of our retirement.

The most straightforward way, it seems, would be for us to purchase the house from her at fair market value, presumably after a value appraisal. I've read that, if the money is not needed by the seller (uncertain), a percentage of the sale price can be gifted to the buyer up the gift tax exclusion, or beyond with lifetime-exclusion ramifications.

Is there an argument, financial or otherwise, for another method of ownership transfer?

Any suggestions to keep everyone in the family happy? DW has 2 brothers, with whom this has not been discussed to my knowledge.
Gill
Posts: 6708
Joined: Sun Mar 04, 2007 8:38 pm
Location: Florida

Re: Purchasing MIL's home as she moves to 55+ community: best practices

Post by Gill »

The fact that there are three children clearly argues in favor of an arms length transaction with no gifts involved.
Gill
Cost basis is redundant. One has a basis in an investment | One advises and gives advice | One should follow the principle of investing one's principal
User avatar
mhc
Posts: 4187
Joined: Mon Apr 04, 2011 10:18 pm
Location: NoCo

Re: Purchasing MIL's home as she moves to 55+ community: best practices

Post by mhc »

I think paying FMV minus any savings for not having to pay a realtor 6% would be reasonable. If it would cause any problems with the 2 brothers, I would just skip it and find a different house.
User avatar
JoeRetire
Posts: 5783
Joined: Tue Jan 16, 2018 2:44 pm

Re: Purchasing MIL's home as she moves to 55+ community: best practices

Post by JoeRetire »

coalcracker wrote: Mon Aug 10, 2020 1:57 pm The most straightforward way, it seems, would be for us to purchase the house from her at fair market value, presumably after a value appraisal.

Any suggestions to keep everyone in the family happy? DW has 2 brothers, with whom this has not been discussed to my knowledge.
Discuss any plans with everyone - mother in law, and both brothers in law. Have everyone involved in setting a price. Make sure nobody besides you wants the property.

If either or both of the brothers in law would also want to purchase the property, then sell to an outside party, assuming your primary goal is to keep everyone in the family happy.
It's the end of the world as we know it. | It's the end of the world as we know it. | It's the end of the world as we know it. | And I feel fine.
User avatar
gr7070
Posts: 1476
Joined: Fri Oct 28, 2011 10:39 am

Re: Purchasing MIL's home as she moves to 55+ community: best practices

Post by gr7070 »

As a landlord since the 1990s I am always astonished at the number of people who want to own a rental property with the intent of moving into it after a decade or more of renters.

No way I'm doing this. Granted money spent on renovating can return that formerly rented propery into something you'd want to live in.

I'm s proponent of rental property. However, unless you desire to be a landlord for the intent of making money in rental property do not hold rental property!

Wonderful homes in wonderful neighborhoods will exist any and everywhere. Buy when you will actually use it. 15 years from now this property might not even be that, even with no decline in its interior.
User avatar
Watty
Posts: 20709
Joined: Wed Oct 10, 2007 3:55 pm

Re: Purchasing MIL's home as she moves to 55+ community: best practices

Post by Watty »

Gill wrote: Mon Aug 10, 2020 2:00 pm The fact that there are three children clearly argues in favor of an arms length transaction with no gifts involved.
Gill
+1

I would also let the siblings know about this before anything is done and to ask them if they have any interest in buying the house.

I would also suggest that you get the house inspected just like you were buying it from a stranger but do that before the appraisal so that any big issues that are found can be factored into the sale price. There could be issues that she does not know about or has gotten used to so you cannot assume that everything is Ok just because you trust her. Another risk is some big issue could come up a month after you buy the house and having had the house inspected would help avoid any awkwardness.

Don't be surprised if the the house develops some problems after you or renters move in. Things like plumbing may have worked for an elderly couple or a window who use it lightly for decades but if you rent it to a family with three teenagers the extra load could cause problems to show up. This is especially true for septic systems.
crefwatch
Posts: 673
Joined: Sun Apr 15, 2007 1:07 pm
Location: New Jersey, USA

Re: Purchasing MIL's home as she moves to 55+ community: best practices

Post by crefwatch »

Does the Over 55 community include Skilled Nursing, as well as Assisted Living? Can she afford the monthly payments with confidence?

I think it's a questionable plan. Aside from the chance that dissatisfaction with the deal could arise in the distant future, what about the chance that a brother loses his job and needs a place to live? Or just needs a bridge between two real homes of his own?

Your own life plans are none of my business, but we (69/64) are remaining in place until we move directly from our mature professional years home, to a CCC. That's partly because we have no children; but I've never understood why two people want to be faced with a second move, at an advanced age, and as a result of no longer being able to go up the front steps or up to the second floor-which is its own kind of shock.
afan
Posts: 5216
Joined: Sun Jul 25, 2010 4:01 pm

Re: Purchasing MIL's home as she moves to 55+ community: best practices

Post by afan »

If the MIL needs the money to buy into her retirement community, then she should not gift any of the sale price to anyone.

With three children, by far the best move would be for her to sell it on the open market for the best price she can get.

Years from now, you can shop for a house in the area, if that was still what you wanted.
We don't know how to beat the market on a risk-adjusted basis, and we don't know anyone that does know either | --Swedroe | We assume that markets are efficient, that prices are right | --Fama
User avatar
Stinky
Posts: 5584
Joined: Mon Jun 12, 2017 11:38 am
Location: Sweet Home Alabama

Re: Purchasing MIL's home as she moves to 55+ community: best practices

Post by Stinky »

gr7070 wrote: Mon Aug 10, 2020 3:04 pm As a landlord since the 1990s I am always astonished at the number of people who want to own a rental property with the intent of moving into it after a decade or more of renters.
+1

I don’t have any interest in buying a tangible asset that I don’t plan to use until 10-15 years in the future.
It's a GREAT day to be alive - Travis Tritt
Topic Author
coalcracker
Posts: 604
Joined: Sat Feb 04, 2012 12:25 pm

Re: Purchasing MIL's home as she moves to 55+ community: best practices

Post by coalcracker »

Thanks all. Good to hear the advice to not buy if we wouldn't occupy for 15 years. I've never been a landlord and perhaps I'm underestimating the wear and tear on the property.
User avatar
Ged
Posts: 3923
Joined: Mon May 13, 2013 1:48 pm
Location: Roke

Re: Purchasing MIL's home as she moves to 55+ community: best practices

Post by Ged »

I would not touch the idea of being a landlord of property a few hours away for 10-15 years.
reln
Posts: 446
Joined: Fri Apr 19, 2019 4:01 pm

Re: Purchasing MIL's home as she moves to 55+ community: best practices

Post by reln »

coalcracker wrote: Mon Aug 10, 2020 1:57 pm My widowed MIL is nearing 80 and, while in good health, has expressed the desire to move to a 55+ community (with option of future assisted living) in the next 3-5 years. She own's her current home with a mortgage. She will need the proceeds of her home sale in order to pay the "entrance fee" of several hundred thousand dollars at her future community.

My wife and I love her house and the neighborhood/city in which she lives, and would consider retiring there in about 10-15 years. While we haven't broached details, we've expressed interest in buying or otherwise transferring ownership of the house to us when she moves. We live a few hours away and would likely rent the house until the time of our retirement.

The most straightforward way, it seems, would be for us to purchase the house from her at fair market value, presumably after a value appraisal. I've read that, if the money is not needed by the seller (uncertain), a percentage of the sale price can be gifted to the buyer up the gift tax exclusion, or beyond with lifetime-exclusion ramifications.

Is there an argument, financial or otherwise, for another method of ownership transfer?

Any suggestions to keep everyone in the family happy? DW has 2 brothers, with whom this has not been discussed to my knowledge.
I would buy it at FMV without any adjustments.
jameskay
Posts: 12
Joined: Fri Jul 24, 2020 10:48 am

Re: Purchasing MIL's home as she moves to 55+ community: best practices

Post by jameskay »

You did not mention how much the house appreciated since she bought it / whether she will owe capital gains...
That might affect whether it is best for her or her heirs to sell it now. Since the basis steps up after death, I know people who are loaning money to parents to NOT sell their house to keep more money in the family.
Carefreeap
Posts: 2868
Joined: Tue Jan 13, 2015 7:36 pm
Location: SF Bay Area

Re: Purchasing MIL's home as she moves to 55+ community: best practices

Post by Carefreeap »

coalcracker wrote: Mon Aug 10, 2020 4:11 pm Thanks all. Good to hear the advice to not buy if we wouldn't occupy for 15 years. I've never been a landlord and perhaps I'm underestimating the wear and tear on the property.
Even "good tenants" put wear and tear on the property. You don't say whether you have kids but if you don't you'll be astonished at the wear and tear and stuff they do. 15 years of tenants and you are talking about a full gut job. And don't underestimate the emotional toll on your spouse if this is a house s/he grew up in. It will feel personal and it's just business.

We rented out our house for 9 years as we relocated twice for DH's job. I wanted to keep the house because I was pretty sure if we sold our Bay Area house we would not be able to afford to move back. Oh and did I mention it has a killer ocean view? :beer 9 years later we moved back into the house (2012) and we've been working on it ever since. It was the right decision for us but it's been a lot of work. It also didn't help that we had to start eviction proceedings. They didn't trash the house but it was well worn when we got it back.

Good luck with your decision.
Every day I can hike is a good day.
PaunchyPirate
Posts: 256
Joined: Sun Nov 30, 2014 7:58 pm

Re: Purchasing MIL's home as she moves to 55+ community: best practices

Post by PaunchyPirate »

** Edited to change Medicare references to Medicaid as pointed out in a later posting.

If you decide to pursue the house purchase, you might consider running the overall plan by an elder attorney in your Mother's state. This is what we did when I decided to purchase my parents home from them 6 years ago. You want to make sure you're setting everyone up for the best situation should she ever need Medicaid assistance with her long-term care.

In my case, the attorney recommended having the house valued by an established appraisal company. The sale price then became that full appraisal value. I didn't bother with trying to save any real estate commissions (my purpose was to help my parents financially). I don't recall the attorney's opinion on those. I have 3 siblings and I also wanted/needed for them to know that I wasn't getting any sort of advance inheritance via a discounted purchase. My parents and I told them about the transaction the day before we executed it. I fully explained that I was paying full price for the house and that this was documented via the appraisal.

If you buy at any significant discount, then this can cause an issue with Medicaid. They consider it hiding assets and will factor that in when determining care coverage. They typically look back 5-7 years for any hiding of assets.
Last edited by PaunchyPirate on Tue Aug 11, 2020 12:19 pm, edited 1 time in total.
User avatar
dodecahedron
Posts: 5358
Joined: Tue Nov 12, 2013 12:28 pm

Re: Purchasing MIL's home as she moves to 55+ community: best practices

Post by dodecahedron »

PaunchyPirate wrote: Tue Aug 11, 2020 7:22 am If you buy at any significant discount, then this can cause an issue with Medicare. They consider it hiding assets and will factor that in when determining care coverage. They typically look back 5-7 years for any hiding of assets.
No issue whatsoever with Medicare. The issue is with Medicaid, which is a completely different program.

They are frequently confused with one another.

Medicare does not care about the level of your assets. Medicaid does.

Medicare does not cover long-term-care beyond 90 days of rehab after a qualifying hospitalization. Medicaid does.

Regardless, the multifaceted complications and headaches of buying a house under the circumstances and plans described by the OP introduces so much potential for stress, I can´t begin to imagine doing it.

Help MIL get her home on the market if that is what she wants to do. Interest rates are low and big houses are popular with work-from-home professionals looking to escape crowded cities.
PaunchyPirate
Posts: 256
Joined: Sun Nov 30, 2014 7:58 pm

Re: Purchasing MIL's home as she moves to 55+ community: best practices

Post by PaunchyPirate »

dodecahedron wrote: Tue Aug 11, 2020 8:20 am
PaunchyPirate wrote: Tue Aug 11, 2020 7:22 am If you buy at any significant discount, then this can cause an issue with Medicare. They consider it hiding assets and will factor that in when determining care coverage. They typically look back 5-7 years for any hiding of assets.
No issue whatsoever with Medicare. The issue is with Medicaid, which is a completely different program.

They are frequently confused with one another.

Medicare does not care about the level of your assets. Medicaid does.

Medicare does not cover long-term-care beyond 90 days of rehab after a qualifying hospitalization. Medicaid does.

Regardless, the multifaceted complications and headaches of buying a house under the circumstances and plans described by the OP introduces so much potential for stress, I can´t begin to imagine doing it.

Help MIL get her home on the market if that is what she wants to do. Interest rates are low and big houses are popular with work-from-home professionals looking to escape crowded cities.
Correct. I should have said Medicaid. Thanks for the correction.
Xrayman69
Posts: 604
Joined: Fri Jun 01, 2018 8:52 pm

Re: Purchasing MIL's home as she moves to 55+ community: best practices

Post by Xrayman69 »

PaunchyPirate wrote: Tue Aug 11, 2020 7:22 am If you decide to pursue the house purchase, you might consider running the overall plan by an elder attorney in your Mother's state. This is what we did when I decided to purchase my parents home from them 6 years ago. You want to make sure you're setting everyone up for the best situation should she ever need Medicare assistance with her long-term care.

In my case, the attorney recommended having the house valued by an established appraisal company. The sale price then became that full appraisal value. I didn't bother with trying to save any real estate commissions (my purpose was to help my parents financially). I don't recall the attorney's opinion on those. I have 3 siblings and I also wanted/needed for them to know that I wasn't getting any sort of advance inheritance via a discounted purchase. My parents and I told them about the transaction the day before we executed it. I fully explained that I was paying full price for the house and that this was documented via the appraisal.

If you buy at any significant discount, then this can cause an issue with Medicare. They consider it hiding assets and will factor that in when determining care coverage. They typically look back 5-7 years for any hiding of assets.
+1 for the process above.

We had a similar situation but with an inherited home split with sibling. My brother in law was at best a financial illiterate. We wanted to purchase FIL home at FMV -6% with cash purchase due to the fact we intended to sell the home in about 10 years (it had a pool and we lived several blocks away and enjoyed having a pool close). We intended to rent our partially the home MIL unit and keep the main floor as our pool house.

The BIL felt the appraisal was “not even close” to what he felt the value of the home. We elected to sell and split cost and proceeds and deemed most appropriate. He ended up getting 60K less than our original offer due to RE fees, Washington sales tax, and cost to update home. It actually sold for less than the original appraisal. The offers in all reality determined the actual FMV.

Once the final offer came back my spouse and I no longer felt comfortable taking the home off market to offer the BIL our original offer. We were originally willing to pay the sentimental tax but after 3 months of dealing with a literal financial “idiot” who felt that the original offer was still insufficient we made a determination that this is a business deal and used the funds of the sale to offset a vacation home on the beach.

In summary to the OP, this is a business transaction. Accept this and all parties in years to come will have the ability to maintain a more normalized familial relationship.
tashnewbie
Posts: 826
Joined: Thu Apr 23, 2020 12:44 pm

Re: Purchasing MIL's home as she moves to 55+ community: best practices

Post by tashnewbie »

I agree with others that it's probably not a great idea to buy a property that you don't personally plan to use for 10-15 years.

How do you know it will still be a good neighborhood/desirable area in 10-15 years? The landscape of that area could change drastically in that time.

I'd opt for the easiest solution, which would be to just help MIL sell her home and figure out how to best protect the cash.
Post Reply