need help with buying house from parents - Posted by Mike

import · April 21, 2018, 4:40pm

Posted by Buddy on January 16, 2001 at 20:58:05:

Back in the early 90’s my grandmother had a modest trust fund and owned her personal residence free and clear. When she went in the nursing home and we knew she would be there for a long time, my father quickly had her deed the house to him. My father couldn’t touch the trust fund and thus we lost the whole thing to medicare. However, my father was able to legally keep the house. The only downside is that the home needed to be in his name for two years before the trust funds ran out. Well, two plus years later the trust ran out and medicare went “looking” for other assets. However, at this point, my father was the legal owner of the house and they couldn’t touch it.

import · April 22, 2018, 4:35am

Posted by Mike on January 16, 2001 at 18:16:27:

Mom and dad no longer want thier house and are willing to sell it to me for what they owe on it, which is about half of what its worth, so obviously I would be getting signifigant equity. My question is, if at some point in time the folks have to declare bankruptcy, could the sale of their house to me for considerably less than fair market value be seen as a “fraudulent transfer,” that is, an attempt to hide assets from creditors?

I only ask this because mom is in the hospital and its possible she could be there for a long time. As of today it looks as if they will be financially ok through insurance and medicare coverage. But there is uncertainty as to what and how much will be covered long term.

What do I need to watch out for here, or can I just buy the place for what they owe and forget about it?

Thanks

import · April 22, 2018, 4:35am

Re: need help with buying house from parents - Posted by Frank Chin

Posted by Frank Chin on January 17, 2001 at 07:29:09:

We wife and I bought a property from my mother-in-law.

Was done legal and proper with CPA/attorney

1- Had property appraised. Usually the appraiser asks -“what’s the valuse you need.” We told him to lowball it since its part of an estate restructuring. Her equity was determined to be 60K based on the appraisal.

2- Had three sets of notes made up - three sets of 10K notes for me, and three sets of 10K notes for my wife. Hav my mother-in-law writes an annual letter forgiving the notes. She can gift up to 10K per year per person.

3- Technically you should be paying interest on the notes. The trick is to have the notes made up in late December, say December 31 - and the first set of notes are forgiven immediately. Then the ones due the next year are forgiven on Jan 1. We got one more set to pay interest on for another year till that forgiven.

4- The property can then be deeded over to you.

5- If its their own home - there’s no taxes due. They should report it as a sale on their tax returns.

This ought to do it.

import · April 22, 2018, 4:35am

Re: need help with buying house from parents - Posted by Tim (Atlanta)

Posted by Tim (Atlanta) on January 17, 2001 at 06:55:24:

My family is facing a situation very similar to yours. Our parents are older and concerned about everything being taken from them if they have to go into a nursing home. One idea I had is this : I have 2 brothers that will be in on this too. We set up a corporation, maybe LLC. Each of us is an equal member of the LLC. Mom and Dad sell their house to the LLC at FMV. Since the house is paid for, no mortgage to pay off. Mom and Dad owner finance the house to the LLC. Every year, they each forgive 10K from the mortgage to each member of the LLC. That would total a gift of $60K each year to the LLC, which is below the 10K per person per year limit. In two years, the house is owned totally by the LLC. Now there is a three year limit on how far Medicare/Medicaid will go back to get assets. So we should be well in the clear in 3-5 years.

Does that sound like it would work? I haven’t consulted an attorney about it, but I am going to in the near future.

import · April 22, 2018, 4:35am

Re: need help with buying house from parents - Posted by JohnBoy

Posted by JohnBoy on January 16, 2001 at 23:21:43:

Buy the house for fair market value. Parents get the equity tax free since it is their personal residence, up to $500k for married couples filing jointly. Once you close on the property and dad has his cash in hand, you and dad fly to Vegas for a nice weekend together. You own the house and can document the sale as far as what was paid and what dad got from the sale.

Pick up a nice shoe box for dad. Because that stinking trip to Vegas cost him everything!!! Those dang crap tables will do it every time! LOL

If asked about where the money went? Um…well, some is with the Horseshoe, some at the Fremont, some went to the Golden Nugget, some at the 4 Queens…oh yeah, then there was the Marage and New York, New York, and the…??? Man, it sure didn’t take long for old dad to blow his wad over a weekend in Vegas! You want proof? Here’s the plane tickets and the hotel reciepts! I tried to tell dad to get away from playing all those parlay bets at the sports book betting $20k a pop on those long shots! He just wouldn’t listen!!! LOL

import · April 22, 2018, 4:35am

READ THIS - Posted by Redline

Posted by Redline on January 16, 2001 at 20:52:05:

I have a little experience in the situation you’re talking about.

Your best bet in my opinion is to purchase the house for near FMV if you can. This will avoid a situation where the transfer may be called into question (which it can be usually within 3 years and especially if it’s at a steep discount.) If a trustee looks at a transfer where there was ALOT of money left on the table - money that could’ve been used to pay off creditors even AFTER the costs associated with getting at it are paid - they have an obligation to pursue it.

Also you’ll need to purchase this in an arms-length transaction (straight purchase as if purchasing
from a stranger). This will surely cost more than just assuming the loan as stated below but this will pass muster if and when the time comes - the assumption SURELY will not.

Also keep in mind the equity they receive from this sale becomes part of their estate and cannot just “disappear”. They need to use it to pay legitimate living expenses.

These are my opinions based on what I’ve read and what I’ve been told by lawyers in NJ. Bankruptcy law CAN differ slightly from state to state (even though bankruptcy is federal). I would suggest consulting an attorney near you.

Good luck,
RL

import · April 22, 2018, 4:35am

Re: need help with buying house from parents - Posted by Jim Locker

Posted by Jim Locker on January 16, 2001 at 19:50:54:

If you aren’t careful, you could incur some tax liabilities from the IRS with this kind of transfer. The IRS could take the position that the equity in the property was a gift to you, and tax you on the taxable portion of that. Your mother can give you $10K in a year, and your father can give you $10K in a year tax free, totalling $20K. Equity beyond that level could be taxable.

The other major risk you run - especially since you say that your mother has a long term illness - is that medicaire/medicaid will come after your parent’s assets to cover medical expenses. They will chase the house, and if your parents deed it to you, they will come after you. It is very common for ailing parents to transfer assets to children in order to become destitute and be eligible for government funded medical care, and the government is wise to this trick.

Deeding it to a land trust will obscure your ownership of the property. This gets into an area where I am not particularly competent, but it seems to me you might want to remove ownership one or two steps from yourself to protect yourself from medicaire/medicaid.

Someone stop me if this won’t work, but why not place the house in a land trust, with a corporation as the beneficiary, and you as the owner of the corporation? Keep in mind that there is an excellent chance that the government WILL come after the house.

import · April 22, 2018, 4:35am

Re: need help with buying house from parents - Posted by M.C

Posted by M.C on January 16, 2001 at 18:27:21:

Let me get this straight… These are your parents right? And they want to sell you this house right?

Have them Deed the house to you and take over the loan! It’s that simple.

Put the property in a land trust and all the worries are behind you. This protects your assets from liability which is the benefits of using the land trust.

Life is good and so is REI

M.C

import · April 22, 2018, 4:35am

Re: need help with buying house from parents - Posted by Redline

Posted by Redline on January 17, 2001 at 21:38:07:

From my understanding, this won’t fly. What I’ve been told is … if you’re gifting away your net worth that’s fine from an IRS point of view but it will never hold water in bankruptcy court. I believe there are statutes that specifically address this sort of thing (gifting and getting rid of money to get net worth to zero).

RL