Personal Finance

Interesting Will Situation, asking for ideas

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[OP]
Deal Addict
Jul 21, 2005
2030 posts
1075 upvotes
Alberta

Interesting Will Situation, asking for ideas

Hi all,

So I have an interesting situation and want to get people's ideas on how to best deal with it and how to work with everyone involved to structure the will that we will have to do in a few years.

Background:
Wife and I bought 4 acres of land recently in rural Alberta ($325k) and will be building our new house there (~$700k). We are allowed to have a secondary dwelling up to 1600 sqf on this land and plan on moving my parents over to our land in a few years and get them a house build there as well. My parents are on board, but here comes the problem.

My parents have always intended to split inheritance 50/50 with my sister. They don't have much as they immigrated here in their 40s, but they do own their home which is about $400k give or take. In a standard situation, obviously we both get 50% of the inheritance and move on, but things will change if we sell their house and use the proceeds to build a new house on our land. Let's say the new house construction will be $400, as they don't have much more than that.

My problem now is my sister. I never wanted anything from them and try to help them as much as I can, and given that they gave me an opportunity in Canada I am doing pretty okay overall myself and never relied on any inheritance, however, my sister is a bit different. She is 4 years older but never really found a good career path that pays well, and well, naturally to her the inheritance is basically part of her retirement plan as she said.

Looking for ideas on how to deal with the situation. Basically a $400k house sitting on my land, it will be under my title, but built with parents money for them. Not sure what kind of arrangement we can make that is fair for everyone when the inevitable comes. The house has value obviously when it's build, but it's build on "foreign" land that my sister has no claim to. My sister suggested we do a guaranteed amount of money based on when the house is built, but that's not very fair to us as the house might depreciate, will require maintenance, and well we can't be expected to fork over $200k at a moments notice, and I can't guarantee the house will carry that value. What makes the most sense to me is if/when we sell the whole parcel of land + both houses on it, we can give her 50% of appraised value of that one house at that point in time, from some independent appraiser.

I don't know, it's still a few years away, but it's never too early to star thinking about this so that we have lots of ideas and options to go to the lawyer with to make this all official. Looking to see your opinions!
52 replies
Deal Fanatic
Mar 21, 2010
6575 posts
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Toronto
I don't know how feasible this is, but the neatest way in my opinion would be to sell your parents the land they need rather than have the house built on your land. Then do it completely at arms' length. They buy the plot of land and do whatever they want with it, they get the house built (if they want to), they handle the maintenance etc.

I think the more you insert yourself ("get them a house built" rather than they get the house built), the messier it will become. If your relationship with your sister is not the best, she could potentially complain that you are mismanaging her eventual inheritance etc. Also, if your parents are no longer working at some point, they will probably start to draw down on that $400k to pay their living expenses, so it doesn't make sense/isn't fair to guarantee $200k at a point in time because then those expenses will come out of your half.

If it was me personally, and if I wasn't willing to leave money on the table (i.e., if I want my fair share and aren't willing to let my sister take what she wants), I probably would avoid this situation entirely.
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Dec 11, 2003
2764 posts
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Toronto
Can you sell your parent's newly built house that would be sitting on your property? If no, then I wouldn't move them onto the property because she's expecting that inheritance. Unless there's something I don't understand then once your parent's new house is built on your property then wouldn't it become "your house"? That means you inadvertently get the entire 400K.

Option 2 is your sister can move into that house afterwards (rent free) instead of selling it (obviously, this only works if she lives close by).

One final thought that popped in my head is can you add on an extra room somewhere for your parents to live in your new home? Or maybe just add on an extra "small" addition for them? That way, your parents can sell their home and still live on your property for you to help them out. So, if this extra addition costs like $150K then just take it out of your share of the 400K inheritance since it adds extra value to your home and property. That way, your sister will still get 200K from the inheritance.
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[OP]
Deal Addict
Jul 21, 2005
2030 posts
1075 upvotes
Alberta
Manatus wrote: I don't know how feasible this is, but the neatest way in my opinion would be to sell your parents the land they need rather than have the house built on your land. Then do it completely at arms' length. They buy the plot of land and do whatever they want with it, they get the house built (if they want to), they handle the maintenance etc.

I think the more you insert yourself ("get them a house built" rather than they get the house built), the messier it will become. If your relationship with your sister is not the best, she could potentially complain that you are mismanaging her eventual inheritance etc. Also, if your parents are no longer working at some point, they will probably start to draw down on that $400k to pay their living expenses, so it doesn't make sense/isn't fair to guarantee $200k at a point in time because then those expenses will come out of your half.

If it was me personally, and if I wasn't willing to leave money on the table (i.e., if I want my fair share and aren't willing to let my sister take what she wants), I probably would avoid this situation entirely.
To sell them the lot would require the lot to be subdivided, which isn't an option since the smallest allowed size is 4 acres as per the county. To split would require a re-zone, which i required about, and it's a messy and very expensive proposition.

My parents are already retired, and their expenses can more or less be covered by their additional small amount of savings + their CPP, and their expenses would be even less on a shared property, so don't think they will be in that situation. Also I will assist them as needed, not going to let them starve to death.
ds2chan wrote: Can you sell your parent's newly built house that would be sitting on your property? If no, then I wouldn't move them onto the property because she's expecting that inheritance. Unless there's something I don't understand then once your parent's new house is built on your property then wouldn't it become "your house"? That means you inadvertently get the entire 400K.

Option 2 is your sister can move into that house afterwards (rent free) instead of selling it (obviously, this only works if she lives close by).

One final thought that popped in my head is can you add on an extra room somewhere for your parents to live in your new home? Or maybe just add on an extra "small" addition for them? That way, your parents can sell their home and still live on your property for you to help them out. So, if this extra addition costs like $150K then just take it out of your share of the 400K inheritance since it adds extra value to your home and property. That way, your sister will still get 200K from the inheritance.
Yes, I guess it does become my house fully, but I do want my sister to get a fair share. She is all for my parents moving to this land as well and supports it, but also wants her fair share somehow. Renting to her rent free I have also thought about, perhaps some kind of a assessment of value at that time/reasonable rental price = years of free living. This can get a bit tricky too....doubt would be able to kick her out 10 years later...assuming she would even want to come and live in Alberta. Our relationship is good now, but who knows what will happen in the future.

Regarding an addition, yah we don't want that at all. The lot is long and narrow, specifically so we could be close but apart with houses build on opposing ends. We don't want to live with our parents, but we want to be close enough to assist. The plan in the future, is that when we get old and fragile, we would have a live-in nanny or something in that second house, and rent it out in-between then (or have sister live there if she wants to).

Yah it's a tricky situation. I will help my parents as much as I can so I don't mind getting involved and not being arms-lengths from the situation, just trying to see how to be fare to my sister at the end and respect my parents wishes of getting her half of what they have.
Deal Guru
Dec 5, 2006
13063 posts
8309 upvotes
Markham
Sort of lost, do you mean
1: your parents sell their house for 400k
2: you use that money to build a house in your land and they live there
3: the new house title is under your name
4: your parents have nothing left for your sister?
[OP]
Deal Addict
Jul 21, 2005
2030 posts
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Alberta
smartie wrote: Sort of lost, do you mean
1: your parents sell their house for 400k
2: you use that money to build a house in your land and they live there
3: the new house title is under your name
4: your parents have nothing left for your sister?
Basically yes. The 400k from the sale of their house would be used strictly for their own house, we are building our own house using our own funds. The title is under my name because the land is under my name, don't think it can be separated as I would have to apply for building permits etc. Yes my parents would have nothing left for my sister other than the house they live in that's on my land. As a family it makes sense for everyone involved, that's not the issue, the issue really is how to be fair to my sister. We don't mind giving her money at some point for her portion, just don't know how to come up with the value, and we can give her the money right away vs future sale. It makes sense we just give her the money when my parents pass, assuming we have it, and get it over with, but if we don't it makes things more complicated. Perhaps if we rent it out we could split income from it or something for a while...then split...don't know, all suggestions are welcome, perhaps something we didn't already think of.
Deal Fanatic
Jan 15, 2017
5232 posts
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Ottawa
If you can't sub divide the lot now and will need to rezone the land to do so, what do you plan to do with the home when your parents are gone?
[OP]
Deal Addict
Jul 21, 2005
2030 posts
1075 upvotes
Alberta
skeet50 wrote: If you can't sub divide the lot now and will need to rezone the land to do so, what do you plan to do with the home when your parents are gone?
I mentioned it earlier, rent it out for a while, and eventually probably for a live-in nanny to take care of us when we get old. We have no kids and don't plan on any, so eventually probably sell it all as one multi-generational land piece (or get bought out by the city as it's pretty close and might expand into there someday) and move into a condo or whatever if we can't manage it any longer.
Deal Guru
Dec 5, 2006
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Markham
eblend wrote: Basically yes. The 400k from the sale of their house would be used strictly for their own house, we are building our own house using our own funds. The title is under my name because the land is under my name, don't think it can be separated as I would have to apply for building permits etc. Yes my parents would have nothing left for my sister other than the house they live in that's on my land. As a family it makes sense for everyone involved, that's not the issue, the issue really is how to be fair to my sister. We don't mind giving her money at some point for her portion, just don't know how to come up with the value, and we can give her the money right away vs future sale. It makes sense we just give her the money when my parents pass, assuming we have it, and get it over with, but if we don't it makes things more complicated. Perhaps if we rent it out we could split income from it or something for a while...then split...don't know, all suggestions are welcome, perhaps something we didn't already think of.
I see.

First I should say thanks for being kind to take care your parents, it's a huge time consuming job

So what I see is you "borrowed" 400k from your parents to build a house, which at certain time, you need return to your parents. Let's say when time is coming, forget about interest , just 400k. So it's reasonable for me your sister get 200k and you keep the house. If house value doubled, it's yours. If value decreases, well, you decide build a house there. You also can keep the land .

I think your sister's request is reasonable. Of course, the actual value is when you sell your parents current house.

When you give her money is up to your family. You can give her once inheritance happens or something like 20k a year or whatever
Deal Fanatic
May 4, 2014
5163 posts
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Toronto, ON
You sure like setting yourself up for trouble with a sister like that. I just don't see how this could play out nicely.

Save up a bit more, build that second small house, "rent" it to your parents.
Sr. Member
Dec 13, 2010
850 posts
1308 upvotes
Vancouver
Would an option be to sell your parents home, and split the proceeds between you and your sister now?

Then you put your $200K towards building your parents home, and use a mortgage for the remainder of the build. That way, everything remains clear, your property is always your property, and your sister gets her fair share as well.
Deal Addict
Oct 2, 2003
1628 posts
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North West Ontario
I think your sister has the right idea.

Take what there house sells for now, split it in two. Come up with a plan to pay her share. That can be now, later, or in payments.

Put the new house in your name. There will would just include bank accounts and smaller assets.

Your other option would be to have it appraised when your parents pass and pay her half that value at that time.

There is no situation where your parents pass and you can keep the house and pay her off when you eventually decide to sell everything.
Deal Fanatic
Jan 15, 2017
5232 posts
5273 upvotes
Ottawa
What you are proposing really doesn't make the best sense financially as there are too many risks associated with it. You are essentially proposing that your parents sell their current home and gift you the proceeds of the property so that you can then build another home for them that you will own outright as it will be built on land that you own.

The risks:

1. Your parents will no longer have legal title to their home or their property,
2. Your parents will live in the home at your leisure, (you haven't mentioned it but they won't even have the rights as tenants),
3. How will your parents pay for any future care or deteriorating health issues when they have signed away this asset? Is this something you and your sister have discussed? For instance one or both of your parents may come down with a medical issue that requires the sale of their home to pay for their care. How will you both meet this challenge when your parent's greatest asset has been sold and there is little cash to pay for this care?
4. Any unforeseen personal issues with you and your wife can impact your parents as you own your parent's house. Divorce or a law suit of any kind could potentially see your parents homeless as the home will be considered your asset and could be seen as an asset in a court settlement,
5. It is really difficult to arrive at an equitable distribution of any future estate as it is almost impossible to determine at this point if there will even be any value to the estate.

Personally, I think it's great that you want your parents living closer to you. I think though that the best action for everyone is for you to sub divide the land so they can build the house such that it remains their house. This allows your parents to maintain an asset that could be used to provide for their care if needed and can be easily sold when the time comes.
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Mar 23, 2008
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Edmonton
mastaj wrote: Would an option be to sell your parents home, and split the proceeds between you and your sister now?

Then you put your $200K towards building your parents home, and use a mortgage for the remainder of the build. That way, everything remains clear, your property is always your property, and your sister gets her fair share as well.
This seems like the best approach to me. But it leaves your parents with NO assets, which may be an uncomfortable feeling for them. Of course, so does your original plan... Like if you went bankrupt and lost the property, your parents would be going down with you.

C
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May 4, 2014
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mastaj wrote: Would an option be to sell your parents home, and split the proceeds between you and your sister now?

Then you put your $200K towards building your parents home, and use a mortgage for the remainder of the build. That way, everything remains clear, your property is always your property, and your sister gets her fair share as well.
CNeufeld wrote: This seems like the best approach to me. But it leaves your parents with NO assets, which may be an uncomfortable feeling for them. Of course, so does your original plan... Like if you went bankrupt and lost the property, your parents would be going down with you.

C
For the children, yeah it's nice. What's stopping the children from kicking them to the curb as soon as they give away their fortune? Not saying OP would do that, but it happens more than you think in the real world.
Member
Nov 26, 2012
431 posts
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Toronto
You should build the house and charge your parents rent to cover any mortgage for this arrangement. That way they have legal rights as tenants and not just guests using your guest house. Your sister would also have to realize that your parents will have to pay living costs no matter what. And that you are taking most of the risk here. ( if she has further issues with this arrangement)

This also protects your parents money and living conditions if you and your spouse ever separate. (Or say if you pass away and your spouse inherits the entire property, has a mental breakdown and decide to kick your parents out…..worst case scenario). At least they would have money and get notice as a tenant if the situation changes.

Lastly, this allows your parents the financial control over their care. What if they need the $400k to pay for none standard care rather than your inheritance? If they give the money to the kids now, what guarantee is there that you or your sister can/will pay for it?
Deal Guru
Dec 5, 2006
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niche54 wrote: You should build the house and charge your parents rent to cover any mortgage for this arrangement. That way they have legal rights as tenants and not just guests using your guest house. Your sister would also have to realize that your parents will have to pay living costs no matter what. And that you are taking most of the risk here. ( if she has further issues with this arrangement)

This also protects your parents money and living conditions if you and your spouse ever separate. (Or say if you pass away and your spouse inherits the entire property, has a mental breakdown and decide to kick your parents out…..worst case scenario). At least they would have money and get notice as a tenant if the situation changes.

Lastly, this allows your parents the financial control over their care. What if they need the $400k to pay for none standard care rather than your inheritance? If they give the money to the kids now, what guarantee is there that you or your sister can/will pay for it?
Is that something you want your kids to do to you? Eg charge you for taking care of you?
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May 4, 2014
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smartie wrote: Is that something you want your kids to do to you? Eg charge you for taking care of you?
Nobody said anything about making a profit off the parents. OP could set the rent to simply cover for property tax and utilities. They would be paying that regardless of them living on their own or not, not unreasonable.

It's the only logical solution to the sister/jealousy situation.

Parents could well choose to just change nothing and continue to live on their own too. That is the other option.
Deal Guru
Dec 5, 2006
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er34er34 wrote: Nobody said anything about making a profit off the parents. OP could set the rent to simply cover for property tax and utilities. They would be paying that regardless of them living on their own or not, not unreasonable.

It's the only logical solution to the sister/jealousy situation.

Parents could well choose to just change nothing and continue to live on their own too. That is the other option.
He said "charge your parents rent to cover any mortgage for this arrangement", so OP eventually owns the house and let his parents to pay mortgage. And you said utilities or property tax, it seems just increases his parents monthly living expenses and has less left for his sister

And how much should OP pay his parents to "bring" him to Canada and raise him to an adult
Member
Nov 26, 2012
431 posts
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Toronto
smartie wrote: Is that something you want your kids to do to you? Eg charge you for taking care of you?
Well OP is literally asking his parent pay $400k to build a home and live on his property with no rights to the property at all so I am answering in that perspective. It’s got nothing to do with how I would do things personally.

To answer your question.
Nope, I would never ask my parents to essentially give me $400k to build a house on my property, in my and my spouses legal name only and let them have no rights to the property. And let my own sister wonder about her inheritance. And yes I would pay my kids a contribution to household expenses if I lived with them and they took care of me.

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