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.

My ideas:

- They get a loan from a bank for the new place, and then I would help
them with the payments (one or both mortgages) until they sell the
condo, and pay me back.

or

- I could pay off their condo so they'd only have one mortgage payment
(the new one), sell the condo, pay me back, and put the rest towards the
new mortgage.

I know in the past though, banks look oddly on large chunks of money
that suddenly appear in someone's account.

As far as putting the property in our names, not sure that's good either.

Thanks!

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/

Todd H. wrote:
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:

Taxes are the least of their problems. If they put the new house in
the two sons names, what happens if one of the sons has an auto
accident, seriously injures someone and incurs a judgement for more
than the limits on their auto policy? Or suppose a son winds up in a
messy divorce and the wife claims she has a stake in the parents home
that her spouse owns.

The inheritance tax issues are minimal. There is no federal
inheritance tax unless the estate is over $1.5mil and it sure doesn't
sound like this estate is anywhere near that amount, or they wouldn't
need a mortgage from jr. The estate taxes in most states are very
modest, many have none at all, particularly for a small estate like it
sounds this one is. A simple check with the state tax website of
the state in question will uncover how much it is. In many states, the
amount depends on how close the person was to the deceased. For a
child and an estate of say $75K, it would not be unusual for it to be
zero. Bottom line, unless this estate amounts to something, wasting
money on lawyers, trusts, etc to avoid estate taxes is pointless. What
the parents do need is a good and properly executed will in the state
of residence. And a living will for the parents is appropriate too.

As for granting the parents a loan, that is entirely up to the son.
Since the parents asked him to help and they will be able to repay it
with the sale of the condo, I would probably do it, provided I had the
funds. I would make sure it's secured by a mortgage on their
existing condo. That way the son is protected in the event that the
parents incure some huge unexpected debt (see auto accident above, or
a sudden medical event, etc) If he does give them a loan, it should be
at rates equivalent to current market rates, otherwise the IRS may have
grounds to challenge that it is a legitimate and deductible (to
parents) loan.



o minimizing or elminating the hit with capital gains taxes on
the condo when it sells.


There should be no capital gains Capital gains on an owner occupied
residence is exempt from federal tax on up to a $500K gain for a
married couple. They do need to have lived in it as their primary
residence for 2 of the 5 years immediately preceeding the sale.




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.

Again, the is no federal tax on estates below $1.5mil. There are lots
of shysters out there advising people to do all kinds of crazy things,
for bizarre reasons, like the idea of avoiding public disclosure. Who
cares, unless this is some big mega estate? Thsi guy doesn't sound
like J Paul Getty. But look around and you'll find guys scaring
people and willing to take your money to set up all kinds of trusts you
don't need.




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.

The only one who can legally deduct the mortgage interest as an
itemized expense is the one who actually receives the mortgage and owns
the property, ie if the parents take out the mortgage, it is they who
must take the deduction. If JR pays it, it's not deductible by him,
unless it's really his house.



Then again, if you already have a home, you
can't get a deduction on a 2nd home...that type of stuff.

Wrong again. The mortgage interest and taxes are deductible on a
second home too.




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.


Just be careful that the loan is not made much away from prevailing
market rates, or it can be challenged as not really a loan by the IRS.




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.

And wrong once again. It doesn't matter whether a mortgage is held by
an individual or a bank. There is no choice here. If the son grants
a mortgage, the interest he receives is 100% reportable as income, with
out regard to what the recipient of the mortgage does. And you'd have
to be an idiot to grant a mortgage that is recorded and not report the
income. Since the son has to report it as income, it would be quite
foolish for the parents not to deduct it, unless the std deduction were
greater.




Good luck!

Best Regards,
--
Todd H.
http://www.toddh.net/

In article . com,
says...


Todd H. wrote:
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:

Taxes are the least of their problems. If they put the new house in
the two sons names, what happens if one of the sons has an auto
accident, seriously injures someone and incurs a judgement for more
than the limits on their auto policy? Or suppose a son winds up in a
messy divorce and the wife claims she has a stake in the parents home
that her spouse owns.

Add to that - is this one of those very rare families wherein, upon the parents
death or vacating this house for any othe reasons, the two sons will amicably
decide how to use the house? If they sell, would they amicably split the
proceeds? Or would one son, by perceived need or perceived involvement or both,
have very different expectations than the other son?

My mother got similar advice - "put everything in the kids' names, avoid
probate". We didn't go along with it. It's a recipe for family disaster.


Again, the is no federal tax on estates below $1.5mil. There are lots
of shysters out there advising people to do all kinds of crazy things,
for bizarre reasons, like the idea of avoiding public disclosure. Who
cares, unless this is some big mega estate? Thsi guy doesn't sound
like J Paul Getty. But look around and you'll find guys scaring
people and willing to take your money to set up all kinds of trusts you
don't need.

Yep - there's a lot of folks out there who will give elders all kind of advice
on how to game the system - as long as money gets moved around and fees charged.

Banty

"Banty" wrote in message
...
In article . com,
says...


Todd H. wrote:
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'
(Snip)
I bought the house my father is living in now, and rent it to him. The rent
he pays covered the mortgage, and no probate concerns whatsoever. Paid it
off early, and now the rent goes into a slush fund account down there for
emergencies, either house-related or if he gets sick. Buy the place yourself
as an investment, charge them fair rent (equal to the mortgage plus
expenses), and have them put the proceeds from the condo is something
secure, to earn a few bucks interest. Added plus, they have a stash if
unexpected medical bills or something come up. Your risk exposure is low,
since land values in AZ are so strong, at least until the water runs out.
Cash is a lot easier to probate and divvy up than shared real estate. If you
can afford to loan 100k, you can afford 20% down of 160k as a long-term
low-risk investment. Their out of pocket costs are no higher, and presumably
the capital gains tax is irrelevant to them, since they were going to buy it
in your names anyway. And since they don't give you anything, no gift tax
issues.

I strongly agree with the others- don't put the place in multiple kids
names. Recipe for family squabbles that can outlive all of you.

aem sends...

ameijers wrote:
I bought the house my father is living in now, and rent it to him.

That is actually one idea I had. I am going to talk with my tax guy
about this. The only issue may be that there are 6 kids in the family.
I am the only one that could come close to doing this for them.

So lets say I buy it for them, take rent which pays the mortgage (and
taxes? etc..). They die. I sell it and triple my money (the way my
mom is talking, it will.. but I know it's mostly the realter blowing
smoke). I could see a couple of the kids thinking they deserve some of
it. Maybe.

The final problem is that they already have made a couple offers,
haven't had an inspection or any contingencies on the offer.

My mom thinks because it's a doublewide/modular home built in 98 that
it doesn't need an inspection. I told her if I was going to help, there
would be an inspection, no questions asked. and I would even pay for it.

In article ,
Legbuh wrote:

Their condo is worth about 130k, and they owe about 20k on it. The
place they are making an offer on is about 160k.

If your parents are getting up in age, yet don't own their
own home, I'd suggest that they not go deeper in debt. Rather,
I'd suggest that they check out the east valley area by Mesa
and Apache Junction. You can buy newer, used, and repo'd
manufactured homes in great condition for the $25K range.
They would have to pay lot rent, or kick in a bit more for
a deeded lot. That would leave them $70K left over from their
nest egg so they have some money to live on.

-john-

--
================================================== ====================
John A. Weeks III 952-432-2708
Newave Communications http://www.johnweeks.com
================================================== ====================

Legbuh wrote:
ameijers wrote:
I bought the house my father is living in now, and rent it to him.

That is actually one idea I had. I am going to talk with my tax guy
about this. The only issue may be that there are 6 kids in the family.
I am the only one that could come close to doing this for them.

So lets say I buy it for them, take rent which pays the mortgage (and
taxes? etc..). They die. I sell it and triple my money (the way my
mom is talking, it will.. but I know it's mostly the realter blowing
smoke). I could see a couple of the kids thinking they deserve some of
it. Maybe.

Yes, that could very well happen. Your siblings could feel that you
got a sweet deal by setting up this rental arrangement instead of your
parents just buying the place. One solution would be to offer to set
up a partnership to buy the home, with ownership to be split among
whoever is willing to go in on it upfront. If they don;t have the
cash or won't participate, then at least they were offered to be in on
it, which may help sooth feelings. But don't count on it

One advantage to your plan that no one has really talked about is the
possibility that your parents might need nursing home care at some
point and might need to qualify for assistance. Having the home owned
by someone else eliminates that as being counted as an asset, provided
it is done early enough, and not in direct anticipation of the event.
But as you realize, there are clear negatives to that as well.






The final problem is that they already have made a couple offers,
haven't had an inspection or any contingencies on the offer.

My mom thinks because it's a doublewide/modular home built in 98 that
it doesn't need an inspection. I told her if I was going to help, there
would be an inspection, no questions asked. and I would even pay for it.

wrote:
One advantage to your plan that no one has really talked about is the
possibility that your parents might need nursing home care at some
point and might need to qualify for assistance. Having the home owned
by someone else eliminates that as being counted as an asset, provided
it is done early enough, and not in direct anticipation of the event.
But as you realize, there are clear negatives to that as well.

I just got off the phone with my tax guy and he said exactly the same
thing. Other plusses are when I go to visit them (I'm in MN) the trip
is deductable. Since I would visit anyway, being able to deduct the
trip expenses makes it even sweeter.

I am interested in any negatives people can come up with on this plan,
though. Of buying it and renting it to them.

John A. Weeks III wrote:

In article ,
Legbuh wrote:


Their condo is worth about 130k, and they owe about 20k on it. The
place they are making an offer on is about 160k.


If your parents are getting up in age, yet don't own their
own home, I'd suggest that they not go deeper in debt. Rather,
I'd suggest that they check out the east valley area by Mesa
and Apache Junction. You can buy newer, used, and repo'd
manufactured homes in great condition for the $25K range.
They would have to pay lot rent, or kick in a bit more for
a deeded lot. That would leave them $70K left over from their
nest egg so they have some money to live on.

-john-


They did own the home for years. But they bailed out another sibling
out of a large issue he had (owned lots of rental property that was
subsequently destroyed in floods). I doubt they'll ever see the 50k
(probably more) they used to help him in their lifetime.

They're not wealthy, but comfortable I guess. They just still help
those 2 or 3 poor siblings still living in the hometown that chose not
to do anything constructive with their lives.

wrote:
Legbuh wrote:
ameijers wrote:
I bought the house my father is living in now, and rent it to him.

That is actually one idea I had. I am going to talk with my tax guy
about this. The only issue may be that there are 6 kids in the family.
I am the only one that could come close to doing this for them.

So lets say I buy it for them, take rent which pays the mortgage (and
taxes? etc..). They die. I sell it and triple my money (the way my
mom is talking, it will.. but I know it's mostly the realter blowing
smoke). I could see a couple of the kids thinking they deserve some of
it. Maybe.

Yes, that could very well happen. Your siblings could feel that you
got a sweet deal by setting up this rental arrangement instead of your
parents just buying the place. One solution would be to offer to set
up a partnership to buy the home, with ownership to be split among
whoever is willing to go in on it upfront. If they don;t have the
cash or won't participate, then at least they were offered to be in on
it, which may help sooth feelings. But don't count on it

One advantage to your plan that no one has really talked about is the
possibility that your parents might need nursing home care at some
point and might need to qualify for assistance. Having the home owned
by someone else eliminates that as being counted as an asset, provided
it is done early enough, and not in direct anticipation of the event.
But as you realize, there are clear negatives to that as well.

Doesn't Medicaid permit a certain cash reserve (varies by state) as
well as a primary residence, and a certain income limit per month? (I'm
just thinking that the whole 'obtain ownership of the house because
they might need Medicaid' thing seems similar to the whole 'avoid
capital gains' thing -- something that people have heard, in various
permutations, but not exactly the case in this situation.)

Caledonia