Three's Company Too
February 24, 2011 8:46 AM   Subscribe

Need financial/legal info about buying a house with someone else. I know YANML and YANMA but wanted starting points, advice, and any stories from people who have been through this.

(asked anon due to personal financial details)

A member of my family, not by blood but might as well be, is very elderly and as of just over a year ago a widow. She has no children of her own but kind of adopted me as a surrogate grandchild. She is now in her 90s and her heath is starting to fail. She has no immediate medical problems but it's really not safe for her to live alone any more (she has fallen twice, once with a broken bone and no one to help her, and is having dizzy spells).

My wife and I are thinking of buying a house where she can live with us. She has outright asked us to do this several times as she hates the loneliness in her house (she is unable to drive and thus is mostly homebound and alone most of the time during the work week).

My wife and I have decent jobs, a small house, and quite a bit of credit card debt that we are digging our way out from under. My surrogate grandma owns her house free and clear but it too is a very small house as they had no children.

What we are looking at doing is selling our house, selling her house, using some of the money from our house to pay off the revolving credit (more on this a bit below), and using the combined cash for a really large downpayment on a new, larger house where the 3 of us can live.

We owe about $35k in credit card debt that we'd pay off from the sale of our house to improve our credit score. Sure, it's not recommended to use house equity to pay off credit card debt, we know that, but we are getting raped at almost 30% interest on the credit cards and mortgages are about 5% so it just makes financial sense to do this.

Financial details:

We owe about $130k on our house, which was appraised at about $210k. She owes nothing on her house, which is appraised at about $200k.

We are hoping to keep our mortgage payments in the same ballpark that we are in now, which means borrowing somewhere from $130k to $150k to add to the about $260 we'd have cash from the houses, to allow us to have a house somewhere around $400k.

My wife and I both work full time, I work two side jobs for extra money as well. Our mortgage currently helps us keep our income taxes low through the deduction of interest offered.

My surrogate grandmother has very little in income and does not pay much in income taxes as it is, but she has a large nest egg that is just a hair over $1 million.

So the questions are:

1) What is involved when two adult parties are going in to purchase a house together? Due to tax laws she cannot just sell her house and give us the money, plus her nest egg may keep our interest rates even lower on the mortgage.

2) How should we work the loan and/or the deed so that when she dies if any blood relatives contest the will we are not at risk of losing our house?

3) She has suggested putting in her will that when she dies the mortgage is paid off from her nest egg, which is divided between us and several blood relatives of hers. Again, how should we structure this so that we don't need to pay a lot in inheritance taxes?

4) Should I be consulting an accountant, a lawyer, a financial planner, all of the above?

Thanks in advance. If other info is needed, throwaway e-mail is
posted by anonymous to Work & Money (5 answers total) 1 user marked this as a favorite
You definitely need an accountant and a lawyer, though if you get a lawyer that does estate planning he may actually be an accountant to. JD/CPA combos aren't uncommon in that line of work. The financial planner isn't necessarily required here because you aren't talking about investing per se. Either way, you're talking about upwards of $1.4 million in assets. Pay the money to do this right.

Sounds to me like you've already identified most of the questions you need to get this thing started.

About inheritance taxes: there's currently a $5 million threshold below which estate taxes are not assessed. That is, of course, subject to change by Congress, but I don't see any changes to that happening while the GOP is, for all intents and purposes, running that show.
posted by valkyryn at 9:20 AM on February 24, 2011 [1 favorite]

I have scant knowledge about this, but what I would be worried about would be that any of her relatives would report you for elder abuse for any reason (like jealousy). A former neighbor of ours in an apt building once told us that her mother liked to help little old ladies with regular stuff and ended up getting sued once by relatives who were suspicious that the mother was after the little old ladies' money.
posted by anniecat at 9:52 AM on February 24, 2011 [1 favorite]

You should definitely consult an attorney who is familiar with estate planning issues. There are ways to hold title so that you can avoid probate problems. Specifically, I'd ask your lawyer about whether it's financially fair to your grandmotherly friend if you all buy the house as joint tenants. Then you have to figure out the mortgage and who should pay how much of it. You have to figure out what will happen if your grandmotherly friend passes away before you both, e.g., who pays the mortgage, how to avoid probate fights with her descendants (if any), and what compensation, if any, you and your husband should claim against her descendants if/when the hardship of care for your friend falls to you.

The goal should be to have a written plan covering every contingency, and proof that your friend is legally competent to make such an agreement. Part of the agreement might require certain provisions in her will, etc., so you and your spouse would be wise to have your own attorney, and a different one for your friend.
posted by Hylas at 11:08 AM on February 24, 2011

You need a contract, and a will. A contract clearly stating the money each party brings to the table, the responsibilities each party is expected to fulfill (and services such as elder care count as responsibilities) and what happens if the agreement is dissolved. Think of it as getting a prenup agreement (actually my prenup covers this exactly for the house I currenlty live in).

You need to get a will drawn up by a lawyer and put through probate, that says exactly what is going to happen on her passing. It would be really helpful if her blood relatives will also agree (in writing) to the arrangement.

I suppose you do have some liability issues if the relatives make a fuss-but then that is true about anything you do. I try not to take the counsel of my fears, but rather the opputunities, and you might just have a golden oppurtunity here to make everyone concerned lives better, so why not take it?
posted by bartonlong at 11:23 AM on February 24, 2011

If I was a relative looking at this from afar I would think it didn't look right. You want to relieve yourself of your current debt and end up with a free and clear $400,000 house when the woman dies (90+ means that could be much sooner rather than later). According to your calculations you would put $45,000 in and keep the paid off $400,000 house? It's one thing if you want to rent her a room and charge something for helping her with her daily needs. It's another thing to mingle your finances and end up way further ahead than you currently are. An estate lawyer could probably come up with something more reasonable and less likely to get you sued.
posted by MsKim at 12:45 PM on February 24, 2011

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