(800) 853-2651
SHOP NOW

Purchasing family property - question

E

Eldon (WA)

Well-known Member
My wife and I are planning to pay off her parent's home equity loan in order for them to avoid forclosure. We are taking title to the property in return. They are 71 years old. Are there any legal aspects of this sale that we should be aware of? The property is probably worth 2-3 times what we are paying for it. Would we be ahead to pay off the loan and have them "gift" it to us? Anyone else been in this situation?
 
(quoted from post at 19:38:30 01/17/14) Big question, are there other children?
Click to expand...

A brother and sister, but neither are in a position to help. They said to do what we had to do. Brother is still living at home and we plan to break off 5-10 acres from the 80 in his and her parents name in a year or so since we are tight for time right now.
 
I believe for what you want you want to have a record of any expenses to acquire the house so you dont have so much capital gains tax when and if you go to sell it in the future . I think if you have it gifted then sell it the whole selling price then bears capital gains tax, best to check your option with your attorney. laws change from state to state.
 
well said usually turns out that way and almost always causes problems especially when other siblings involved too many chiefs not enough Indians
 
I think, at the inlaws age of 71, I'd be more worried about the 5 year claw back rule if they need to move into assisted living housing.
 
I feel for you, in a rock and a hard place.

Might as well kiss the mo ey good bye.

We all can see the train wreck coming. Many of us been there.

Sorry.

Its not that the siblings can't help out. Its how they are going to
grab when the estate needs to be settled......

If you don't have a lawyer set this up from the get go, and just
asking here...... You will have nothing but heartache from this.

Paul
 
Im not at all an attorney and would recommend you
retaining one. Don't gift it, buy it for payoff.
In a sense you are getting a deed in lieu of
foreclosure, just like a bank would.

As to medicaid and claw backs, there is are
provisions for a child who takes care of the
parents. There are also 'arms length' rules. Once
again, this is where you need an attorney.

In my own case, it cost me about 250$ to get the
advice you seek customized to my own situation. As
to buying the property, you want an attorney to
handle the closing (or gifting) if thats what you
pursue. If its a gift your tax basis will be what
they paid for it. If you buy it for whats against
it, thats a purchase and that becomes your tax
basis.
 
You must hire an attorney and talk to a tax accountant, there could be tax problems for your parents as well as for you down the road.
 
If the property is legally sold, there will be no estate to settle where land is concerned. Other siblings will have nothing to grab for.
 
I would be real careful on how you are doing this. I would have a lawyer involved RIGHT now. The trouble is that they can transfer the property to you but if they become ill then you may have to pay back the value they gift you.

The State and Feds look real close at any real property transfers for five years prior to them needing any government help. IF you where giving market value then there is ZERO issue but where you are NOT giving full market value it would cause a major problem.

That problem could be you having to pay them the amount they "gifted" to you. In other words the full market value of the house less what you already gave.

You almost need to buy it like a foreclosed property would be handled.

Then are your going to give them a life estate on the house??? At 70 years old they could live into their nineties real easy. Even if they are living in a home they would still be the owners of the house until they died.

Had a friend that got into this with his parents. They split the farm house off of the farm many years ago. Then he give them a life estate on the house. They both went into a nursing home for over 15 years. HE had to pay them an amount each month that was equal to what the house would rent for until they died. That is how the Federal program works as the life estate had a value until they died.
 
I just went threw this a few months ago.
I have been living on a piece of property my parents own for over 30 years. Was suppose to be my part of the inheritance.

Long story short.....
Both my parents are 84 so a old age home may be in their near future.
If you do not pay full appraised value the government can come back and call any difference between what you pay for it and full appraised value a gift under the 5 year law.
Both my parents are still alive but I can already see my sisters chomping at the bit trying to add up their share.

So I just went out and got a loan and bought the property for full appraised value from my parents.
If I get some of it back because my parents still have the money when they die so be it but at least I know I have this place to live.
I have never in my life been so separated from my sisters as in this past couple of years.
It has gotten so bad I even told my dad I would be happiest if he just left everything to a charity. At least that way I would not have to watch the wolves fighting over left overs.
 
I would definitely recommend that you retain an attorney who specializes in real estate. There are several factors which you are concerned about, and you want everything to be nailed down as tight as possible. As to the "gift" option, some states have a pretty healthy tax on gifts exceeding a certain value, you may come out ahead by purchase and transfer of ownership. An attorney can advise.
Also, you mentioned that the property is worth considerably more than you will be paying, this could become a sticky point in the future. I would think that it would be wise to have the other siblings sign legal papers stating that they have no objections now or in the future, otherwise, they as heirs could possibly file claim to their "share" of the inheritance when the parents are gone. An attorney can advise you there. No, I am not an attorney, and do not care to keep them up, but occasionally it is necessary to retain one.
Just my thoughts.
 
got done with a lawyer rental agree.ment power of attorney
medical powers will etc no aspirns could of used them 800
bucks dang glad i did it sure peace of mind.
when it comes to familys i hope its not like mine i was off
farm for a year starting on my own dad wanted me back
several people told me not to should of listened.
im also wondering on foreclosure maybe they should look
into bankrupcy i know its got a bad rap but when the bank
forged papers to get the farm(judge decided they were not
brought to him in a timely manner )it was the only way to
hang on
 
Eldon,

You should NOT be asking for answers here....hire a GOOD attorney. Money well spent.

Would you be asking an attorney how to fix your tractor? Be smart about this!
LA in WI
 
I've just gone thru 2 estate settlements. "Close"
family can go sideways really quickly where 1
Money, or 2 Property is involved. What everyone is
saying is correct...get an attorney...the right
one. An 'arms length transaction" is what you want
that will stand up to the IRS and family. my 2
cents
 
(quoted from post at 21:40:31 01/17/14) Eldon,

You should NOT be asking for answers here....hire a GOOD attorney. Money well spent.

Would you be asking an attorney how to fix your tractor? Be smart about this!
LA in WI
Click to expand...
Thanks for all the responses. I know we need an attorney, just need to find out all the questions to ask...you guys helped in that dept.
 
Purchasing a large asset like a house from elderly family members for 25 to 33 percent of market value will certainly raise legal and ethical flags. Can you afford to pay full price for the properety?

If your in-laws were to sell the propery to an outsider at market price, they would pay off their mortgage and keep the remainder as cash.

I would consult an attorney before proceeding. Maybe have your in-laws consult their own attorney as well.
 
If they want to stay in it buying it with them having a life estate in it may work out to every ones best interest. Of course I don't know your state tax law, everyones health, income ect
 
(quoted from post at 00:13:02 01/18/14) Purchasing a large asset like a house from elderly family members for 25 to 33 percent of market value will certainly raise legal and ethical flags. Can you afford to pay full price for the properety?

If your in-laws were to sell the propery to an outsider at market price, they would pay off their mortgage and keep the remainder as cash.

I would consult an attorney before proceeding. Maybe have your in-laws consult their own attorney as well.
Click to expand...

It is actually part of my wife's grandfather's farm that they inherited....and no, we don't even have all the money to pay off the loan, that is why I am selling off part of my tractor collection.
 
My parents wanted to sell what remained of their ranch to my wife and me when they moved to a condo in town. They offered it to us at a price that we could probably have afforded, which admittedly was probably a very good deal for us.

However my brother and sister got real mad, and said we should pay much more. It ended up that I spent a year of my time getting the property cleaned up and ready to sell to someone else. My Dad sold the buildings and part of the property for less than I was going to pay for it and then sold the other parts of the property to other people. My parents carried the contracts and we almost got two of the properties back when the buyers did not pay for a while. All in all, it was a mess. I got little or no thanks for my hundreds of hours of work.

But at least my brother and sister still speak to me...which I guess is worth something.

If your wife has siblings, I would proceed with great caution!!! The deal might or might not be worth all the heartache it might very well cause.

And the advise about using a GOOD lawyer who really understands property law AND elder law might make things go much smoother. I sure wish my Dad had used a better lawyer when he sold the property.

Good luck, I hope things work out the best they can for your family.
 
The question is not whether they can help or not
and especially if they can't. They will resent you
and your wife from getting a good deal and wanting
something in return... like a chunk of the
property or money to compensate them. They may be
fine with what ever you do now but who knows down
the road. Get the BEST attorney you can. It's
money well spent to avoid a HUGE nightmare! Wills,
estates and property are the biggest cause of
seemingly close families becoming dysfunctional
and hating each other!!!
 
As JD said be careful paying less then full value.
Friend of mine bought his parents farm paid full
market value then couple years later his parents
had to go to county nursing home, before paperwork
was done the county was trying to take the farm to
pay for their care. Since he paid full value they
couldn"t. This was a huge financial burden for him
but was the only way to keep the home place.
 
This might help.......

Annual limits before the IRS takes notice

First, a gift must be quite substantial before the IRS takes notice.

A gift of $14,000 or less in a calendar year (2013) doesn’t even count.

If a couple makes a gift from joint property, the IRS considers the gift to be given half from each. Mom and Dad can give $28,000 with no worries.

A couple can also give an additional gift of up to $14,000 to each son-in-law or daughter-in-law.

The effective annual limit from one couple to another couple, therefore, is $56,000 ($14,000 X 4 = $56,000).
 
If they gift the property to you, then your cost basis is whatever they paid for the property plus improvements. If they sell it to you, then your cost basis is what you paid them for the property.

If they sell you the property, they may have to pay capital gains tax. If they gift you the property, technically they would be liable for gift tax for the value of the property less the $14,000 annual exclusion. In practice, since the gift can go against their lifetime gift/estate exclusion, which is now over $5 million, they wouldn't have to pay.

There are Medicaid considerations as well, whether they are currently on Medicaid or you expect them to in the future. This whole area is very messy. It is best you retain a lawyer who specializes in "elder law".
 
I agree. See an attorny and a tax accountant.

The people on this site are fantastic, but do you turn to them to have a serious medical condition diagnosed?

A ten minute conversation with an attorny that I wasn't even billed for once saved me from making a mistake that could have cost me thousands.
 
Wrong, Shadetree. My best friend bought the family farm from his parents. When his father died, his mother lived in the farm house(Friend had already bought 5 acres, and built a home on it).
When she died, the 2 sisters contested the will, and got the farm re-appraised to current value. Friend had to get a new loan to pay sisters off.
 
I see there's a brother and sister involved. DON'T DO IT! You'll be ten thousand times more sorry if you do than if you don't. These things never end well and before it's over,it'll be the two of them against you,for the rest of your lives.
Trust me! It'll be great to them that you bailed the folks out. Not so great that you didn't split it three equal ways AFTER you bought it. Especially since you're buying it for way less than it's worth.

WALK AWAY.
 
(quoted from post at 08:22:15 01/18/14) I see there's a brother and sister involved. DON'T DO IT! You'll be ten thousand times more sorry if you do than if you don't. These things never end well and before it's over,it'll be the two of them against you,for the rest of your lives.
Trust me! It'll be great to them that you bailed the folks out. Not so great that you didn't split it three equal ways AFTER you bought it. Especially since you're buying it for way less than it's worth.

WALK AWAY.
Click to expand...
So you would just walk away and let the bank take the farm that has been in the family over 100 years (for 1/3rd to half the value)??
 
No,but I would come up with enough money right now to pay your brother and sister each a third of the value. Yes,it's going to cost you three times as much,but if you don't,I'll guarantee you'll have problems with them in the end.

I bought the farm from my folks 33 years ago on a land contract at 7% interest. I paid every dime of it off,interest and all. Dad has been gone for 7 years now,Ma is 88 and it's just a matter of time. I have 5 siblings and the "why should he get anything? Dad gave him the farm" garbage has started among some of them and their worthless kids already.

Not to sound un sentimental here,but I can tell you first hand,having the old home place is no blessing,it's a genuine curse. There's hardly a day that goes by that I don't wish I had gone someplace and bought a place that didn't mean diddly crap to anybody.
 
You are right: if at all possible, try to avoid a foreclosure sale.

If your in-laws cannot afford the payments they will be much further ahead to sell part or all now at market price rather than to wait for a bank foreclose sale. The bank might accept the first offer above the amount owed them and your in-laws could lost much of the equity they have in the property.

Much of the confusion and frustration seems to be from the idea that you expect to buy the property for only the amount remaining on the mortgage rather than paying full market price. That's not going to happen without legal problems and family problems. Talk to a professional and have them spell out your options.

Good luck, it sounds like you want to help your in-laws.
 
Not enough facts in the first post to give good advice, but as more has come out, here's my take on it.

rrlund is exactly right about the family aspect. Your relationship with sis and bro will be "irretrievably broken" if you buy the land for lots less than it is worth, no matter what they say now.

You should save it from foreclosure, and here's how. Loan the money to your folks to pay it off, and get a Note and Deed of Trust, "all proper like". Can be on a "demand" note, at nominal interest, with no payments and no due date (due on demand). So then they will still own it, subject to the debt to you.

For estate planning purposes, it would be best for them to then deed it to you and your siblings, as tenants in common, reserving a life estate for themselves. Might as well get the 5 year look-back period for Medicaid going sooner rather than later. So long as the resulting ownership is the same as it would have gone under intestacy laws (in this case, share and share alike), there are no gift tax implications, because its an advance against your inheritance exemption, which is $2 million in Washington and $5 million or so with the Feds.

So then, the 3 of you will own it, subject to the $37,000 owed to you. Sounds like you want to keep it in the family, so you then need to figure out how siblings are going to repay you to even up the ownership. If you are going to operate it, you keep the full tenants share each year, crediting their shares against the debt until its paid. If you rent it out, same deal. Or you make arrangements to buy out their shares over time. Or one of them could buy the other two out.

This stuff should be agreed upon before you do the deal, so there are no surprises, and no hard feelings.
 
(quoted from post at 10:32:00 01/18/14) No,but I would come up with enough money right now to pay your brother and sister each a third of the value. Yes,it's going to cost you three times as much,but if you don't,I'll guarantee you'll have problems with them in the end.

I bought the farm from my folks 33 years ago on a land contract at 7% interest. I paid every dime of it off,interest and all. Dad has been gone for 7 years now,Ma is 88 and it's just a matter of time. I have 5 siblings and the "why should he get anything? Dad gave him the farm" garbage has started among some of them and their worthless kids already.

Not to sound un sentimental here,but I can tell you first hand,having the old home place is no blessing,it's a genuine curse. There's hardly a day that goes by that I don't wish I had gone someplace and bought a place that didn't mean diddly crap to anybody.
Click to expand...


Well I wish we could pay everyone off, but there is no way we can get (or make payments on) a $250k loan...I'm hitting roadblocks just trying to borrow $40k on a farmer's income. We are already using our "emergency" funds the way it is, if one of us got sick or hurt we could be in real big trouble.
 
(quoted from post at 11:43:36 01/18/14) Not enough facts in the first post to give good advice, but as more has come out, here's my take on it.

rrlund is exactly right about the family aspect. Your relationship with sis and bro will be "irretrievably broken" if you buy the land for lots less than it is worth, no matter what they say now.

You should save it from foreclosure, and here's how. Loan the money to your folks to pay it off, and get a Note and Deed of Trust, "all proper like". Can be on a "demand" note, at nominal interest, with no payments and no due date (due on demand). So then they will still own it, subject to the debt to you.

For estate planning purposes, it would be best for them to then deed it to you and your siblings, as tenants in common, reserving a life estate for themselves. Might as well get the 5 year look-back period for Medicaid going sooner rather than later. So long as the resulting ownership is the same as it would have gone under intestacy laws (in this case, share and share alike), there are no gift tax implications, because its an advance against your inheritance exemption, which is $2 million in Washington and $5 million or so with the Feds.

So then, the 3 of you will own it, subject to the $37,000 owed to you. Sounds like you want to keep it in the family, so you then need to figure out how siblings are going to repay you to even up the ownership. If you are going to operate it, you keep the full tenants share each year, crediting their shares against the debt until its paid. If you rent it out, same deal. Or you make arrangements to buy out their shares over time. Or one of them could buy the other two out.

This stuff should be agreed upon before you do the deal, so there are no surprises, and no hard feelings.
Click to expand...

I wanted to go the loan route, but my wife doesn't. Her dad has never been good with money even though he was a teacher with a good income and benefits. She is afraid he will take out another loan without us knowing. He can make payments, but in the meantime we are left without savings and no escape route if we have an emergency... BTW, the property is in Michigan. The house has been in "remodel" mode for years and won't qualify for a real mortgage. Not sure where you got the $37000 from....
 
Listen to Mike(WA). He's got a good idea there. Just believe me,this stuff doesn't stop with just one generation. My kids have already had words with their cousins who have made cracks about this place being "given" to me.
 
I say you are doing the right thing and I assume the other siblings have had a chance to do what you are doing or join in on the deal.If they won't step up and help out now then it'd matter
ZERO what they had to say about it later to me.Just make sure the deal is AIR TIGHT!
 
(quoted from post at 12:47:58 01/18/14) Listen to Mike(WA). He's got a good idea there. Just believe me,this stuff doesn't stop with just one generation. My kids have already had words with their cousins who have made cracks about this place being "given" to me.
Click to expand...

I know all about family....We bought a 160 acre farm near my parents and sold 40 acres with a 3000 sq ft house that was ten years old, a milking parlor, 40x100 loafing shed w/80' silo and feeding system to my brother and his wife for $50k and talk was that we screwed them over. Gotta love siblings.....I have 11 of them :( .
 
(quoted from post at 12:53:18 01/18/14) I say you are doing the right thing and I assume the other siblings have had a chance to do what you are doing or join in on the deal.If they won't step up and help out now then it'd matter
ZERO what they had to say about it later to me.Just make sure the deal is AIR TIGHT!
Click to expand...

That is exactly what we thought when we were asked for help. We are the only ones willing to stick our necks out to save the place, and they all agree. That should be worth something right there!
 
Yep,hope this post is a warning to everybody. You never know who your relatives are or what they're capable of until there's money and/or real estate involved.
 
Sounds like they have some common sense too to agree to the deal so the parents don't loose their home and you should get something for sticking your financial neck out in my opinion.
Go for it.
 
Thought I saw the figure somewhere in the thread, but I guess not- number doesn't matter, anyhow.

Guess I just assumed the property was near you. If you do a loan and get a recorded security interest (Deed of Trust or Mortgage, depending on what they use in Michigan), it will effectively prevent Dad from getting another loan, because you will be in first position. I have never advised clients to panic if someone gets a loan "behind" them on a piece of property- because it pretty much insures that you'll be paid off, if borrower defaults on the second.

In the final analysis, its your wife's relatives, so she's really the one to decide how you structure this will affect her relationship with her siblings.
 
Be very careful not to get over extended yourself. You would be far from the first person to loose two properties trying to save one.
 
You can pick your nose and butt but you can not pick your relation. Get with the mortgage holder and make a deal to buy it from them after the parents sign off on it. If it is getting that close. You might get it bought for less than the mortgage. They will want their money as soon as possible without the legal fees. This way, there will be no family involved. The sooner the better but don't act too anxious to "save" the property of your parents. By all means, don't you go broke trying to save them.
 
Eldon: Would you and your wife borrow/spend the same amount of money to go out and buy other land??? I think not. So the emotional issue becomes because it has been in their family for a long time.

Here is the real issue/gamble:

1) The relationship between your wife and her siblings. They will care down the road. You can make book on it. So it is a very poor gamble that they will be happy with what happens. Truthfully it should be all of the kids or none of them doing this "buy out".

2) Are you really thinking your going to get the land for 1/3 to 1/2 its actual value. Deep down is this a major motivation to do the deal??? IF it is then it is GREED driving this not a good deed for your in-laws. Nothing wrong with a profit or good deal on something but it is going to be at your wife's family's expense. The odds are it will make for hard feelings.

3) The gamble is going to be IF your in-laws stay in good health for 5 years. IF they do your going to get a deal for 1/3 to 1/2 its value but if they do go into a home YOUR going to have to Pay the full market price for the land/house. IF you think paying the low price is going to stretch you wait until you have to pay the balance. You have stated that your Father-in-law is a poor money manager. Do really think he is going to all of a sudden switch at his age???

The fact you are living many miles away would make it a no go for me. Being an absentee landlord is not good business. It rarely works out.

I think your going to make a bad mess even worse. Possibly causing you financial problems for land you really will not get much good out of.
 
A friend's mom passed away. She had been in and out of the hospital and spent a short time in a nursing home. My friend's sister and her husband had done a lot of work to the house at their expense. The two brothers kicked in some money as well, but the sister and BIL kept all the receipts. The state had a lien on the house which was worth in the $100K range. The lien was for a little more than the value of the house. The sis produced the receipts for the work and said they did the labor (which they did). The state investigated and said if the daughter wanted the house she could buy it for $23K. She did. Her two brothers never asked for anything. They didn't even ask to be reimbursed for what they had contributed for materials when they fixed up their mom's house. They had given money as a gift to their mom to make her life easier. The siblings all got along great.
So not every situation is going to end up badly for someone trying to help a parent.

I wouldn't worry about the siblings wanting to cash in later. I'd be more worried about what will have to be spent on the house. The OP did say it's been in a perpetual state of remodeling.

If the siblings were to all chip in and buy the place I'd be worried about owning property with someone I don't want to be partners with.

The best option may be to let it go into foreclosure and buy it from the bank and lease it to the in-laws.
Talk to a lawyer!
 

Thru the 90's I was able to roll the dice and pay off my moms place with out asking my 3 sisters and 2 bro's for help... My mom gave me the place around 2000/2001 she lives with me now in the house... I have beat the 3 year look back deal at that time... I tried to get my name added to the load but I am self employed and did not want to go thru the paper work...

I outlived all of my family but my mom so I don't have your problem... I did borrow again moms life insurance to pay one of my sisters off it did no good she still held a grunge till the day she died but she took the money,,, I even paid for her funeral and did not get a thank you out of it... I am still paying moms insurance co $100 a mo again the loan 8 years later...

All I own is paid for I have 2 kids as of now its split 50/50 in my will... I am going to check next week on making them part owners of all I own... I plan to give them 1% each ownership I will own 98%... I hear this type of rule is soon to be abolished so I need to get it done soon...

The 5 year look back rule,,, all they know is what you tell them don't tell them let them research it... I have been told by the local clerk of court she has never seen it searched... If they did they would have to probate it and it would come thru her somewhere along the line...
 
You must log in or register to reply here.

Similar threads

W
New 2N owner, new to the whole lifestyle really.
2
Replies
26
Views
2K
Leroy
L
J
First time no JD combines in our harvest plans!!
2
Replies
33
Views
2K
JD Dave
J
jon f mn
Whats no longer ethical?
2
Replies
34
Views
2K
K Effective
K
K
Double stamped ford hood
Replies
4
Views
2K
OldSchoolGuy
O
F
OT - Maple Syrup Advice - Adirondack Case Guy?
Replies
12
Views
857
barnyardorange
B
Tractor Parts Tractor Manuals

We sell tractor parts! We have the parts you need to repair your tractor - the right parts. Our low prices and years of research make us your best choice when you need parts. Shop Online Today.

Copyright © 1997-2024 Yesterday's Tractor Co.

All Rights Reserved. Reproduction of any part of this website, including design and content, without written permission is strictly prohibited. Trade Marks and Trade Names contained and used in this Website are those of others, and are used in this Website in a descriptive sense to refer to the products of others. Use of this Web site constitutes acceptance of our User Agreement and Privacy Policy TRADEMARK DISCLAIMER: Tradenames and Trademarks referred to within Yesterday's Tractor Co. products and within the Yesterday's Tractor Co. websites are the property of their respective trademark holders. None of these trademark holders are affiliated with Yesterday's Tractor Co., our products, or our website nor are we sponsored by them. John Deere and its logos are the registered trademarks of the John Deere Corporation. Agco, Agco Allis, White, Massey Ferguson and their logos are the registered trademarks of AGCO Corporation. Case, Case-IH, Farmall, International Harvester, New Holland and their logos are registered trademarks of CNH Global N.V.

Yesterday's Tractors - Antique Tractor Headquarters
Website Accessibility Policy

Back
Top