Helping Parents Plan Retirement Housing

Q: My mother and step-father are thinking about selling their house and moving to be close to me in their retirement.
 

I suggested that they give me the money from the sale and I would use that to pay off my house. I would then buy another house that they would live in rent free.

I thought this would help them because they would be able to live well if they didn't have a regular mortgage payment.

Are there any tax implications if they give me a cash gift of $100,000? Do I have to worry about any tax implications of them living in my house rent-free? Also, what happens if I own two houses, and live in one. Would I have trouble buying another one?

A: I’ve reread your letter several times and I’m still not sure why your parents should give you a cash gift of $100,000. It appears to help you (that, I understand), but I don't see how it helps them.

It seems to me that what they should do is sell their house and buy another one near you. Hopefully, they can buy a house for the amount that they have in cash. If not, perhaps you will buy it with them, as joint tenants with rights of survivorship.

You may eventually inherit their share of this house someday, and you will inherit it tax free, and at its current market value on the day they die.

As for your parents, if you can afford to buy them a house so that they can live rent-free, and it will make it easier on them, then perhaps you should consider doing that. You can purchase this house as a second home, and pay a lower interest rate on the mortgage. If you can’t qualify for the home based on your debt-to-income ratio, then perhaps they could pay you enough “rent” out of their $100,000 in cash in order to make the numbers work for the mortgage lender.

But let’s go back to that money for a moment. Retirement is expensive (and getting more so by the minute) and I really think your parents should bank their $100,000 in case they need it for health or other expenses in their older age.

It seems to me that your suggestions, while well-meaning, needlessly complicate the situation. Please seek the advice of an estate planner or estate attorney to help your parents make sure these transactions work well with the rest of their estates.

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