Personal Finance

Interesting Will Situation, asking for ideas

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  • Aug 19th, 2021 8:53 am
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Jan 15, 2017
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UrbanPoet wrote: They are putting in $400k?

One way to do it is… give them % based equity.

Best way is *tenant in common*
OP never mentioned severing the property. The new house will become part of the existing property.
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mastaj wrote: Anyhow, regarding fairness - it really is your sister who is going to be at the most risk. I hope you're able to come up with an equitable solution. Kudos to you, for wanting to provide for your parents!
Just fast-forward to the day after the last parent has passed. The sister is expecting to inherit her ($200K) share. The new house is part of the brother's property now.

If you were the sister, what would you need to be assured that you will receive your inheritance some time in the next 12 months?

If it were me, I'd want there to be a $400K promissory note that has come due, payable to the estate. It's up to the brother to find a way (refinance etc.) to come up with at least $200K which will go to the sister. The brother's share probably doesn't actually have to be paid since it's coming right back to him anyway, but that's for the lawyers to figure out.
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Jun 13, 2010
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What are you going to due if one or both parents need to be put into a LTC facility? You and your wife won't be with them 24/7. If they start leaving the stove on, start wandering outside in their PJs in the winter or become bedridden they will need round the clock care. $$$ will be needed but will have already been spent. Your plan falls apart unless both of your parents will be mostly self sufficient and only require minor help for the rest of their lives.
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Dec 13, 2010
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taxrage wrote: Just fast-forward to the day after the last parent has passed. The sister is expecting to inherit her ($200K) share. The new house is part of the brother's property now.

If you were the sister, what would you need to be assured that you will receive your inheritance some time in the next 12 months?

If it were me, I'd want there to be a $400K promissory note that has come due, payable to the estate. It's up to the brother to find a way (refinance etc.) to come up with at least $200K which will go to the sister. The brother's share probably doesn't actually have to be paid since it's coming right back to him anyway, but that's for the lawyers to figure out.
Agreed. If it was me as the other sibling, I would insist that the parents home be split now, to avoid having to go through the legal hassle of setting up promisary notes. There's also the risk that when the parents pass, that there isn't actually any money. What if the brother can't refinance enough cash - would he be forced to sell his property? It just seems like a nightmare waiting to happen - which can be completely avoided by just selling and splitting the proceeds now. Especially if the parents themselves have suggested this - they're onboard with giving an early inheritance.
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Mar 21, 2010
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taxrage wrote: OP never mentioned severing the property. The new house will become part of the existing property.
I guess the other way to get around the "your house on my land" situation (I probably wouldn't recommend it, but no reason it can't happen) is don't sever the property but add them to the title of the existing property. Treat them as though they are investors investing $400k in a company worth $1.4m (300k land, 700k big house, 400k small house), and give them that percentage of everything, not just the new house.
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Jul 21, 2005
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skeet50 wrote: You may have good intentions. You simply don't currently have the financial means and security to ask your parents to take this huge risk at this time. Any number of unforeseen things can happen that derails this situation and places your parents in significant risk - you or your wife could have a terrible accident and not be able to work, either of you could come down with a terrible illness, you may have a child or two that have costly needs or illnesses/disabilities that need to be addressed, death, divorce. Before you even consider this I suggest you put in place a plan (maybe some sort of insurance plan) that will be there to care for your parents if for some reason you cannot.

The fact that you are not concerned about your parents losing their equity is quite shocking for me, especially since you stated earlier that they arrived in this country with very little and have worked hard to build a significant sum of money.

Oh, BTW - lots of us in North America are more than willing and are caring and supporting our elderly parents every day.
I don't think the risk is as big as everyone makes it out to be. We own the house we live in now outright, we bought land outright, currently have no mortgage. We will need to borrow some money to make this all come true, but we will recoup most of it when we sell our existing home. By the time all of this is done, we will basically have 2x houses + land paid off....with only expenses being the costs of living, such as property taxes, utilities and food. Financially this isn't a stretch. Yes we don't have 400k laying around right now to build them a house outright, so we would need their money to make it happen, and we aren't forcing them. We proposed this to them in good faith, my sister told them it's a great idea, they want to do it, so really once we execute on the plan it's back to living mortgage free, so the risks aren't that great I don't think. Rural property taxes are smaller the in the city, all else remains the same, so I don't think the financial risk is all that big personally.
Manatus wrote: I completely agree. Even if that's not the intent (and I believe it's not), it would be very easy for the sister to end up believing that this whole thing was started by her brother and he roped their parents into it as a way to get all the money. I think, if she's not already, the sister should be part of the discussion/decision around the whole plan, not just the money aspect.
She is part of the discussion. She is the one that convinced them to do it when they were hesitant. I brought it up to them, they were hesitant to not burden me, and when they spoke to my sister about it she basically told them she fully supports it. The whole inheritance thing just came up later when I was thinking about it, and still am, so just gathering ideas for now. I do appreciate every input and every angle, gives me things to think about I haven't already.
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May 17, 2004
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What capital gains have the parents made on their house? If it isn't too much, let them keep the house.

OP has already said that he would likely use the house in the future, after his parents pass, for a nanny or caregiver once he and his wife are older. So building a second dwelling has value to him. Why should his parents pay for it? If OP is really trying to do something nice, he can do it by building the second dwelling early and letting them live in it while he's waiting to get old enough to need the space for a caregiver.

But what about the ongoing costs (maintenance, utilities, maybe interest costs) of the second dwelling?

Rent out the parents' house and use that to pay for ongoing costs of living on the OP's new 2nd dwelling. In the months where the rent isn't enough (if there's no tenant or if in general they can't get enough rent to cover the costs), OP and his sister can split the costs. If the rent can more than cover it, parents are making money.

Current mortgage rates are < 2.5% fixed 5 year term at the big banks. If the whole 400k is paid for as a loan, the interest cost is $833 per month. Parents shouldn't be responsible for any of the principle (if OP can front any of it himself), since the OP is the one that benefits ultimately from the second dwelling. The extra taxes for a second dwelling would be a few hundred more per month. And parents would be paying for utilities no matter where they were living, so they can continue to be responsible for that. The rent on a 2 storey house in many parts of Canada should be enough or come close to the cover the extra $1,000-$1,200 OP is spending to build a dwelling now than later when he needs it himself. And if it isn't, then the difference split between OP and sister seems like it should be small enough when compared to the potential cost of leaving the parents in their home and helping pay for home care to let them stay there.

The main downfall is that once they move out, the parents' house is no longer their primary residence and they lose the capital gains exemption when it sells (unless one of them moves back in before they both pass). Which is why it matters how much the house has appreciated since they bought it.

On the other hand, this avoids a lot of the other problems.
  • Inheritance? Still there. Still potentially appreciating.
  • Ongoing costs to OP? Paid for out of rental income. With a small risk of needing to split a small monthly amount with sister. Depending on the area, it might be a small source of income for the parents after interest costs and taxes.
  • Long term care in the future? Parents can fund it out of their rental income or by selling their house.
  • The second dwelling? Completely belongs to the OP. Sister and parents should have no issue, since parents are not paying to have it built, just paying the costs (interest and additional property taxes) involved in building it now instead of in the future (when OP gets the benefit of it for his own use or when OP might have been able to save enough to build it without borrowing money).
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Jul 21, 2005
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tew wrote: What are you going to due if one or both parents need to be put into a LTC facility? You and your wife won't be with them 24/7. If they start leaving the stove on, start wandering outside in their PJs in the winter or become bedridden they will need round the clock care. $$$ will be needed but will have already been spent. Your plan falls apart unless both of your parents will be mostly self sufficient and only require minor help for the rest of their lives.
If this happens I am ready to pay out of pocket for this myself. Worst case scenario is we sell everything, move into a small house ourselves, and proceeds of the sale can go towards their care etc. I'm 37 now, if all goes well I got lots of years of work left in me with a pretty stable career.
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Jul 21, 2005
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bdckr wrote: What capital gains have the parents made on their house? If it isn't too much, let them keep the house.

OP has already said that he would likely use the house in the future, after his parents pass, for a nanny or caregiver once he and his wife are older. So building a second dwelling has value to him. Why should his parents pay for it? If OP is really trying to do something nice, he can do it by building the second dwelling early and letting them live in it while he's waiting to get old enough to need the space for a caregiver.

But what about the ongoing costs (maintenance, utilities, maybe interest costs) of the second dwelling?

Rent out the parents' house and use that to pay for ongoing costs of living on the OP's new 2nd dwelling. In the months where the rent isn't enough (if there's no tenant or if in general they can't get enough rent to cover the costs), OP and his sister can split the costs. If the rent can more than cover it, parents are making money.

Current mortgage rates are < 2.5% fixed 5 year term at the big banks. If the whole 400k is paid for as a loan, the interest cost is $833 per month. Parents shouldn't be responsible for any of the principle (if OP can front any of it himself), since the OP is the one that benefits ultimately from the second dwelling. The extra taxes for a second dwelling would be a few hundred more per month. And parents would be paying for utilities no matter where they were living, so they can continue to be responsible for that. The rent on a 2 storey house in many parts of Canada should be enough or come close to the cover the extra $1,000-$1,200 OP is spending to build a dwelling now than later when he needs it himself. And if it isn't, then the difference split between OP and sister seems like it should be small enough when compared to the potential cost of leaving the parents in their home and helping pay for home care to let them stay there.

The main downfall is that once they move out, the parents' house is no longer their primary residence and they lose the capital gains exemption when it sells (unless one of them moves back in before they both pass). Which is why it matters how much the house has appreciated since they bought it.

On the other hand, this avoids a lot of the other problems.
  • Inheritance? Still there. Still potentially appreciating.
  • Ongoing costs to OP? Paid for out of rental income. With a small risk of needing to split a small monthly amount with sister. Depending on the area, it might be a small source of income for the parents after interest costs and taxes.
  • Long term care in the future? Parents can fund it out of their rental income or by selling their house.
  • The second dwelling? Completely belongs to the OP. Sister and parents should have no issue, since parents are not paying to have it built, just paying the costs (interest and additional property taxes) involved in building it now instead of in the future (when OP gets the benefit of it for his own use or when OP might have been able to save enough to build it without borrowing money).
Interesting approach, something I will think about, might work. Not sure how banks view secondary dwellings since it's not something they can come and take away if I default, as they have 0 claim to the land. Might be hard to get a mortgage for that...but I will have to think about it.

As for those who I haven't specifically replied to, very good input, I just don't have much to say to some of it so I don't, but still much appreciated.
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May 17, 2004
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eblend wrote: Interesting approach, something I will think about, might work. Not sure how banks view secondary dwellings since it's not something they can come and take away if I default, as they have 0 claim to the land. Might be hard to get a mortgage for that...but I will have to think about it.

As for those who I haven't specifically replied to, very good input, I just don't have much to say to some of it so I don't, but still much appreciated.
The mortgage would be on the property as a whole: the parcel of land with two dwellings on it. A mortgage is just a loan secured against a specific type of asset. And unsecured loan would just cost more (higher interest).
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eblend wrote: If this happens I am ready to pay out of pocket for this myself. Worst case scenario is we sell everything, move into a small house ourselves, and proceeds of the sale can go towards their care etc. I'm 37 now, if all goes well I got lots of years of work left in me with a pretty stable career.
But the thing you need to consider is that it's not just the "happy" path you need to focus on. You need to focus just as much (or more) on the "rainy day" path. What are you going to do if you and your wife get divorced? What about if you and your wife die? What about if your parents decide living in the sticks isn't for them, and they want to move back into town? How will your parents pay for assisted living, if they can no longer live without more dedicated care? What about if your sister suddenly needs to go into long term care, but all your parent's money is tied up in property they don't own, so they can't help her?

All those things can be handled, but they need to be discussed and solutions documented up front. Which I understand posting here is a way to try to think of some of the "negative" situations that you might not have thought of.

C
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CNeufeld wrote: What about if your parents decide living in the sticks isn't for them, and they want to move back into town?
That could be a problem if the land isn't severed. As currently proposed, it's a 1-way deal.

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