Buying / Living with your Grown children

[jghorton]

We've considered a similar situation with our daughter/SIL buying into a property where we would live together. We would both contribute different amounts to the purchase (perhaps $600K us and $400K them; producing a 60/40-recorded ownership of the property (with appropriate legal/title paperwork). Upon our death, our estate would be split 50-50 between our son (who lives in another area) and our daughter. The question is 'How does our son get his share out of what will then be our daughter's appreciated, but jointly-owned-with-us-home, (particularly if she and her family are not prepared to sell the property at that time?

At our death, our daughter's 40-percent ownership of the property would increase by 30-percent to a total of 70-percent ownership of the current value of the property (ie; $1.4M value of the property value at that time x 70/30-percent or $980K-d/$420K-s).
That valuation would be adjusted 50/50 by a+b dollar by our cost of significant upgrades and projected RE fees. Thus, our son would be due $420K + a/b) on the property.

The remainder of our estate (unknown ?) would then be divided 50-50, with our daughter's portion being used to offset whatever was due our son from the home. Optionally, our daughter could take-out a home mortgage in the amount of our son's inheritance portion of the home. They are smart, honest, caring people and would work-out an equitable solution, including tax ramifications, etc..

If, given your situation, your daughter had no investment in the property, she would still accrue 50-percent ownership at the death of you or your wife (last remaining spouse), This would make a 50-percent (prox) mortgage necessary if you had no other estate assets and your daughter and family wanted to remain in the property. If a mortgage could not be acquired, it would make the sale of the property by the estate necessary, dividing the proceeds thereafter.

This may be oversimplified in the face of a myriad of "What ifs" that could be raised (particularly Calif. inheritance law), but, it's unlikely that you (or we) will be able to cover every possible contingency.

[jamesly]

Originally Posted by Silverfall

So if I am understanding your scenario here, your daughter won't be paying any rent. Just utilities? Will that come with an expectation that they will help and assist you as you age in place? That would be a fair trade, IMO.

It seems to me the easiest is to have you buy it in its entirety. Upon your death, it is appraised and your daughter can finance the property and pay her brother his half out of that mortgage. I assume they would rent out the unit you are occupying so that they could have additional money in addition to their own incomes to pay the mortgage on the entire property easing the cost of the mortgage.

This is exactly (almost) what we are doing. I described this in my last update.

My Daughter will be paying an amount roughly 1/2 market rent. That amount will pass to my Son each month. It is equivalent to 1/2 his rent

[jamesly]

Originally Posted by jghorton

We've considered a similar situation with our daughter/SIL buying into a property where we would live together. We would both contribute different amounts to the purchase (perhaps $600K us and $400K them; producing a 60/40-recorded ownership of the property (with appropriate legal/title paperwork). Upon our death, our estate would be split 50-50 between our son (who lives in another area) and our daughter. The question is 'How does our son get his share out of what will then be our daughter's appreciated, but jointly-owned-with-us-home, (particularly if she and her family are not prepared to sell the property at that time?

At our death, our daughter's 40-percent ownership of the property would increase by 30-percent to a total of 70-percent ownership of the current value of the property (ie; $1.4M value of the property value at that time x 70/30-percent or $980K-d/$420K-s).
That valuation would be adjusted 50/50 by a+b dollar by our cost of significant upgrades and projected RE fees. Thus, our son would be due $420K + a/b) on the property.

The remainder of our estate (unknown ?) would then be divided 50-50, with our daughter's portion being used to offset whatever was due our son from the home. Optionally, our daughter could take-out a home mortgage in the amount of our son's inheritance portion of the home. They are smart, honest, caring people and would work-out an equitable solution, including tax ramifications, etc..

If, given your situation, your daughter had no investment in the property, she would still accrue 50-percent ownership at the death of you or your wife (last remaining spouse), This would make a 50-percent (prox) mortgage necessary if you had no other estate assets and your daughter and family wanted to remain in the property. If a mortgage could not be acquired, it would make the sale of the property by the estate necessary, dividing the proceeds thereafter.

This may be oversimplified in the face of a myriad of "What ifs" that could be raised (particularly Calif. inheritance law), but, it's unlikely that you (or we) will be able to cover every possible contingency.

What you described is again, Almost EXACTLY what we spent weeks trying to work out. That was our first attempt. We were looking at 66%/33%...
But the requirement to track all of the expenses, upgrades and how to apportion the appreciation was simply not worth it - to us.
As well as "(with appropriate legal/title paperwork)." Both attorneys said this was going to leave open room for disagreement in the end.

a) We did not want them on the title as discussed in one of the replies here, for liability reasons, and for the purpose of taking advantage of property tax and capital gain taxes on inheritance. Also, we avoid paying property taxes on the new purchase price if WE (our trust) buys the "entire home". As we can transfer our tax base of 3000/yr due to a recent Law change, and they inherit at that base up to $1,000,000. The home will be worth more that that almost immediately, but after our deaths, if they stay in the home they will only pay the new tax rate on portion of the value over $1,000,000.
b) We are trying to help them to not have to come up with a Down / or make large mortgage type payments based on that split.
c) In the end Daughter will own 50% no matter what. So they only gain 10ish% while the whole time possibly struggling to make mortgage level payments to us (or a bank).
d) My Son gets an immediate benefit while we are alive as well.
So upon our death everything is 50/50.

Of course we presented all of the earlier and this final idea to the family. Both children and SiL are on board 100% with this and are relieved it would leave no need to perform any calculations in the end.. There will almost certainly be enough in my daughter's 50% inheritance to pay off my Son. So that won't create a financial hardship for them.