My parents want to pay off the mortgage and move into a rental house. Is this dangerous?

My parents offered to use the proceeds from the sale of the condo to pay off the loan. That amount exactly matches your outstanding balance. Initially, we were planning to rent to cover the monthly payments, but this poses a problem because we still have a mortgage on the condo.

To make matters worse, considering there are only two children in the family, the older sister is entitled to 50% of the sale price of her parents’ condo. How will they determine my sister’s future claim to my condo once I pay off my mortgage?

Assuming the condo sells for $400,000 and $200,000 is allocated to pay off the mortgage, your parents insist that this money be returned to your sister when they die. But considering the potential inflation of this value over time, I wonder if it’s really that simple.

Or now split $400,000 evenly, allocating $200,000 to my sister and the remaining $200,000 to me. However, this amount is not enough to cover the existing mortgage loan, so parents must cover the balance. I question the fairness of this. Specifically, ask them to handle your monthly mortgage.

I would like your advice on this matter. thank you

other sisters

See also: My sister and her ex-husband promised in their divorce decree that they would repay my loan. They never did. Is this legally binding?

Dear Sister,

This is much more complicated than it needs to be.

If your parents tell you that you have to give 50% of $200,000 to your sister as an inheritance, you won’t be able to afford the mortgage payments. It puts you in a difficult position. Then you have to give your sister $100,000. I think you will repay this debt. But this column is full of contracts that are made (but not signed) and people break them. After my parents passed away.

Another difficulty: If they pay off the mortgage and the value of your condo goes up 50% over the next 10 years (or more as you hope your parents stay healthy and live long), would you rather pay your sister back $150,000 or $100,000? Would you like to? ? Your sister is not her investor in your condo, so giving her the $100,000 she would have received in the first place would seem like a reasonable solution.

I know what’s in store for your parents and you. They can live rent-free and you get $200,000 up front. But in reality, you’re only giving them $100,000, and if you keep doing that, your parents will actually be lending you the remaining $100,000. Keep your condo proceeds as you may need them in an emergency and ask them to rent a condo in the area of ​​your choice.

But what happens if a real estate accident happens and a condo worth $400,000 today becomes worth $200,000 at some point in the future? What happens if you experience flood damage and don’t have adequate insurance? And what if your sister comes crying and says she wants money tomorrow? What if your parents are aging and need to move into residential housing, and their money is stacking up against your condo?

If your parents pay off the mortgage and live another 20 years, they will be living in a $400,000 condo at a cost of $200,000, and you will receive no rental income during that time. Renting your home also offers you a variety of tax breaks, including depreciation, advertising, maintenance and repairs. If your parents live rent-free, they cannot claim this amount.

Get legal advice

I repeat, never make such a large financial decision without the help of legal counsel. This is especially true if you are dealing with family. Gary Botwinick, Chair of the Wills, Trusts & Estates, and Tax Practice Group at Einhorn Barbarito in Denville, NJ, extends his sympathies to you and your parents. “Giving children equality in estate planning is one of the most difficult issues for parents. This is especially true if one child has current needs and one or more other children do not,” he says.

He suggests that your parents could repay half of the loan and give part of the inheritance to your sister now. Second, they can give each of you a cash gift, and you can choose to spend it however you wish. Third, Botwinick says that if your parents have the money, they can pay off your mortgage and purchase an interest in your residence, and if the survivor of either of you dies, they can leave the interest in your residence to your sister. They say they can. (This sounds like the least attractive option to me.)

Families (family systems, as psychologists sometimes call them) have complex values ​​and expectations that people may or may not be aware of. People are conditioned within their families to accept certain things and behave in certain ways, and when they deviate, other family members are sometimes encouraged to intervene. Do not feel obligated to accept this arrangement.

If you decline their offer and decide to rent to your parents (instead of an independent third party), ask them to sign a rental agreement. It’s a good habit. There would be no debate about who should have paid what. But would you be willing to increase your parents’ rent if property taxes increased and the rental market improved? For all the reasons above, it is best not to mix family and finances.

Maintain your financial independence and help your parents find another property.

More from Quentin Fottrell:

‘My 75-year-old father died without a will.’ His ex-wife, fiancée and children are hiding his financial documents. oh my god?

I want to spend more time with my newborn son, but my husband doesn’t work. Should you quit your job and invest in a trust fund worth hundreds of thousands of dollars?

My husband bought a house with his inheritance. I signed a waiver. He said I could live there after he died, but he changed his mind. What now?

If you have any financial or ethical questions, you can email The Moneyist at qfottrell@marketwatch.com and you can follow Quentin Fottrell on X, a platform previously known as Twitter. Moneyist regrets that we are unable to answer questions individually.

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