Legbuh writes:
Hi all!
Here's the situation. My folks currently live up north (ND) in a
condo. They are close to retirement and have always wanted to move to
AZ. Well, they recently visited and found some properties they are
interested in.
Their condo is worth about 130k, and they owe about 20k on it. The
place they are making an offer on is about 160k.
They are asking me to help them with this, as a loan, to get between
the two. I told them they'd probably be better off getting a loan
from a bank, sell the condo, then pay off most of the loan.
Instead they want to loan money from me (100k or so) and then pay me
back when they sell the condo in ND.
They also have said they'd like to put the new place in AZ in mine and
a brother's name so when they die there isn't a lot of headache. I
don't know if this is the best idea either.
So, for these two situations what options are there? I can afford the
loan, but not sure if I want to put a large portion of my nest egg up
for this. Also, not sure about putting the new place in their kids'
name. I know this means we'd pay taxes on it, in the least.
So looking for any ideas.
You and your parents really need to talk with a tax advisor, and/or
someone savvy in inheritance planning (a lawyer savvy in wills and
trusts for instance). There's a lot to this stuff, and it's really
easy to set it up stupidly without professional guidance.
Now, assuming you aren't worried about your parents making good on the
loan, and assuming your brother isn't a shiester and you trust him,
the only things you should be concerned with all have to do with
taxes. The concerns to balance out with the ultimate plan:
o minimizing or elminating the hit with capital gains taxes on
the condo when it sells.
o minimizing how much the tax man benefits from your parents'
future passing that will be deducted from your inheritance.
Even if you don't feel you need any of that money, your
parents will want you two to have it vs the IRS if there's a
choice! There may be merit in your parents idea to put the
new home in both of your names, or in the names of an
irrevocable trust, or things like that. This can also have
benefits of streamlining things when they do pass, and
keeping the settlement of the estate out of public records,
yadda yadda. Your parents idea may very well have some
merit there. AARP magazine talks about stuff like this all
the time, btw.
o ensuring that whomever is paying the mortgage is able to
deduct the mortgage interest to minimize their yearly income
taxes paid. But, if it's your retired parents paying, they
may not have much income to speak of, and may not need the
deduction. Then again, if you already have a home, you
can't get a deduction on a 2nd home...that type of stuff.
and one final issue:
o Perhaps you're willing to lend money to your parents at a
rate that is a) greater than the interest rate you can get
at a bank right now, and b) lower than anything they can get
from a commercial lender. And that way you could both win.
But be sure to factor in that interest paid on a private
loan like this wouldn't be deductible like mortgage interest
is to a commercial lender... unless of course you the
borrower were to claim the interest as income on your
taxes. It can get complex. Hence the need for a tax
advisor's input here.
Good luck!
Best Regards,
--
Todd H.
http://www.toddh.net/