Unlocking Fairness: How AI Legalese Decoder Can Aid in Renting Your Parents’ Home Equitably
- August 29, 2023
- Posted by: legaleseblogger
- Category: Related News
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My parents, who are currently in their mid 70s, own a spacious 4000sq ft. home situated on 3 1/2 acres in rural Wisconsin. The mortgage payments they make each month amount to a mere $500, and they have approximately 10 more years left to pay off the loan. The property was originally a bar/restaurant that unfortunately failed, leaving my parents burdened with additional debt. However, after undergoing extensive remodeling, it has been transformed into a large house.
Looking towards the future, it is understood that eventually, and hopefully many years from now, my sister and I will inherit this house. With the exciting prospect of a 100% remote job opportunity within my company, I now have the option to no longer reside close to Madison. Given my parents’ age and the increasing burden of maintaining such a vast property, they are considering downsizing. The idea of relocating to a nice apartment in their current area, which comes at a reasonable cost of around $650 per month (rural WI is known for its affordability), is appealing to them. Additionally, it would grant them the opportunity to spend quality time with their beloved granddaughter.
Currently, I am paying approximately $1300 for my proximity to Madison. After careful consideration, we have come up with a mutually beneficial arrangement. I would contribute $1200 per month, which would cover both their apartment lease and the cost of renting an apartment for myself. The remaining $500 would be allocated towards their mortgage, essentially acting as a form of savings to be “refunded” to me when we eventually inherit the property.
To be completely transparent, I am struggling to comprehend the logistics of this arrangement. Considering my less than ideal credit score of 580, it is impractical for me to secure a loan to outright purchase the property at its market value. This proposal, however, presents a win-win situation for all parties involved. I am determined to structure this agreement in a manner that ensures my sister is not at a disadvantage in any way. And this is where AI Legalese Decoder can come to our rescue.
AI Legalese Decoder is an innovative tool that can assist us in navigating the legalities and complexities of this arrangement. By utilizing its capabilities, we can identify the most appropriate legal framework to ensure fairness and safeguard the interests of all individuals involved. The AI Legalese Decoder can help in drafting a clear and comprehensive contract that outlines the terms and conditions, ensuring transparency and preventing any misunderstandings.
Overall, the combination of this unique arrangement and the guidance provided by AI Legalese Decoder will help us forge a secure and equitable agreement. It allows my parents to downsize and enjoy a more manageable living situation, grants me the opportunity to pursue my remote job without the burden of expensive rent, and ensures that my sister’s interests are protected. With the support of AI Legalese Decoder, we can confidently proceed with this plan while preserving a harmonious family dynamic.
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You will be paying $100 less per month and covering the mortgage and their rent. This gives them a smaller, more manageable space to retire in and you and your sibling get the house. IMO your payment of the $500 mortgage would be the equivalent of an occupancy fee (just like rent). If you are living in the house then property taxes, utilities and maintenance would be your responsibility. Big fixes, like a roof or utility conversion, whose benefit would last more than ten years would be borne by both of you. Sounds like a pretty good arrangement that benefits everyone, especially since property value will increase over the next ten years. The house/land sounds big. Maybe consider subletting some
Of it to offset the $1200. Just a thought.
Edit: Make sure you iron out all of the details, in writing, with an attorney so there is no confusion in the future. Also make sure your parents estate plan reflects the new arrangement.
Would it work, in such a big house, to have them stay but you do all the upkeep? It would save them money they could then put towards the principal of the mortgage. So, you would pay the mortgage and they can put extra on the principal so it is paid off in less time and it will mean more money for their use once the mortgage is paid off. Then they will have their $500 plus your money in their bank account.
If they have their heart set on moving out, why not bring your sister into the conversation? You want to be fair. Her hearing the talks and knowing what is happening would go a long way to her knowing about your rebate. Also, are they putting this rebate into their will? It is best to get everything in writing.
The key to what they are trying to do, is delay passing it to you, until you inherit it. If they sell it, they will likely have a large capital gains bill. If they die, you inherit it with today’s cost basis. So, they are doing you, and sis, a big favor, and are taking care of their needs, as well. I think this is a win win for all.
Going forward you can consider it your house, expect to pay all upkeep, repairs, insurance, utilities, etc… Legally, you are a tenant, until your parents pass and you and sis inherit it.
As far as your sister goes, she only comes into the picture when she inherits it. Expect to pay her rent going forward from that point.
Look into a “Living Estate.” Basically, you and your sister will be on the deed, but you will not get it until they pass away.
I think it would be fair for you to just pay their apartment rent and they continue to pay the mortgage. After all, the apartment rent is what you would pay if you moved to the area and rented an apartment yourself instead of them renting one. You may be in for a big surprise when you start receiving utility bills for a 4K sq ft house and discover how much time and money will be required for maintenance and upkeep. By living in the house and maintaining it, you are relieving them of the stress associated with maintaining a large property (house + land) and giving them countless hours of free time to do what they want (instead of maintaining the property). Be warned….they will still consider it their house and won’t view you as a tenant so expect them to come by when they want and without warning. You also need to be prepared for them to frequently “comment” on how you aren’t maintaining the house like they did (like if you let the grass grow 1 inch higher than they usually did). Hopefully, they will just “correct” the way you are(n’t) maintaining the house themselves instead of harassing you about it.
I do think it would be a good idea to make certain your sister knows about whatever arrangement you work out with your parents. You don’t want/need this creating a rift in your family. If she doesn’t live locally, she also needs to consider the amount of time you will be spending helping your parents as they age.
What would be the fair value of their home on the rental market? If they just rented it to a stranger, how much would they get? That’s about how much you should expect to pay, potentially less because presumably you are going to take care of the upkeep and repairs while you live there.
You should have a lease also.
Really what is “fair” is what you and your parents agree to, if you both are comfortable with the agreement it shouldn’t matter what anyone else thinks.
With that said, what is the market rate for renting something similar in that area? that is what the price should be, anything less and your sister is likely going to feel like you were cut a deal that she wasn’t. But like I said before it really isn’t her business nor does she have a voice in the fight.
What they paid originally or what they are currently paying is completely irrelevant.
Your plan sounds like a good one. Keep the house so you and your sister can inherit it (with a very favorable tax treatment), your parents can move somewhere they can manage, you get to live in a large house that suits you and save a little money. Win win. Just be sure you have a very clear definition of who pays for various items Рmortgage, property tax, insurance (presumably your parents). Utilities? What about repairs, replacements, improvements, Maintenance, appliances, etc? Be very clear in advance and write it down. Remember, you do NOT own the house and when your parents pass, your sister will own half of it. So you probably shouldnt pay for these major items alone. Maybe your parents pay, maybe the three of you share the costs  discuss, agree, write it down in advance. What if you want or need to move elsewhere? What if you stay for 20 years, will rent increase? Consider all these things.
Great idea! But, I think your biggest obstacle will be trying to get your parents to moveÔÇöespecially to an apartment where they will have to put up with apartment life.
How about you moving in with them and help them maintain the property?
Do you have a good relationship with your sister? Or do you have a terrible relationship with your sister and there is a chance your sister would come after you with allegations of elder abuse if your elderly parents were to lease their house to you for sub-market rates?
My relative is 91 years old, lives in an assisted living home, pays $7,500 per month. What happens if one or both of them need that care? Will they be able to sell their home to pay for it?
If your parents can afford it…. It is similar to a situation where one sibling rented a house that would have been about 2k a month for the discounted rate of $1500. Since that sibling was given a $500 a month “gift”, they then gave the other sibling $500 as well. I hope I explained that clearly. Basically, the parents didn’t need the money so basically started giving both sisters $500 now rather than waiting and paying a tax man a cut of it. But it sounds like your parents aren’t in that position.
Please check with a good CPA. Any payment you give to them as “rent” could be considered income to them and therefore taxable. A good finacial advisor can help you structure this properly.
Fair for whom? You, you’re parents, or your sister?
For you, you don’t want to be paying more than the value you are getting. So anything up to the fair market value of renting a similar property. If you are expected to provide maintenance (not upkeep, maintenance and repair) then you would want to make a reduction to that.
For your parents, same – fair market value. Obviously this can be reduced, but minimally, it needs to be something over the $500 a month mortgage.
For your sister, while your parents are alive, doesn’t matter. It’s when they pass away that it becomes an issue. Assuming that the plan is for your sister and you to split the estate 50/50. If you are also planning on staying in the house, there are two ways to handle this (talking fair, not law – there are myriad legal things that can be done) – 1) you get a mortgage to buy your sister’s share of the house (50% of the value of the home minus 50% of the debt remaining) plus assume the current mortgage or 2) you both remain co-owners and you pay your sister 50% of the fair market rent value. Either way, you should have a conversation with your sister and parents about this now. Find out her view. Just remember one very critical thing – your parents are under no legal obligation to will their estate to you or your sister. Morally, too – they don’t owe you anything (based on these facts).
The fairest way would be you pay the mortgage, taxes, utilities, do the upkeep, & 1/2 rent on the parent’s apartment. Paying the full amount for their apartment doesn’t sit right with me.
Your parent will have to claim as income unless it’s on the down low. I rented my house to my kids and they took advantage of me, like not always paying rent, or late. Always late. Whatever..I’m back in the house. I m9ved put after my husband died. It was a terrible time for all. Please pay the rent on time, and fully.
Don’t get an apartment. Live with them or take loan out on house and they buy another house. Use your payment to pay mortgage on both homes. Then when they die you sell the second home too and get that money back rather waste it on renting an apartment. They have to have plenty of equity in their home and I assume good enough credit to get another home
This is a bad deal.
You will never get that money back. And you will lose interest on all the equity you missed and you won’t get compensation for upkeep.
Pay the mortgage and the taxes and look after it and call it even.
Your parents are in their 70s and you want them to posthumously REFUND mortgage payments? MF, what?
Sounds like you just want their house and make them pay for it still. Sounds like you want to be ÔÇ£rentingÔÇØ on paper with the intent of not ACTUALLY renting, just getting them out of the way and getting your money back at a future date.
I hope they write you out of the will.
Forget inheritance.
Forget their new rent.
Forget the mortgage.
What’s the area market rate for a similar rental at 4000 sq ft? That’s the fair way to rent the home.
The only possible complication here is the mortgage payments being “refunded.” This would need to be put into a will or trust document to be binding, and may cause some conflict with the sister. I am not sure it is all that fair to her anyway. You would be paying $1300 rent if not for this arrangement, so even with the mortgage payment, you are still coming out ahead. Plus, you say elsewhere that your parents could get 1500+ to rent it, so they stand to lose $300 here. So basically, from your sister’s POV, you are saving $100, getting a $300+ break on the value of renting the house, building “equity” in a way by getting a refund of the $500 mortgage payments later, AND all the while costing your parents some money too. Doesnt seem all that fair. Property tax is probably the only thing that should be refunded here, depending on how much.
I think if you do away with the mortgage refund idea its fine. You save some money off market but help keep the house in family for your sister, your parents give up some profit to keep house in family and downsize, your sister gets no actual benefit but no actual loss. If you want everything to be on the “up and up,” pay market rent and your parents act like LLs – pay taxes and repairs.
Dont rent from your parents. Bad idea theyll leave you in a ditch first chance they get
Pay mortgage, insurance and all utilities.
Option 1: Stick with the 1200 month number you came up… it’s less than your current rent.
Option 2: Move in and live with your parents? Unless you have a reason not to…
Option 3: Check what the actual rental value is on that home. Sites like zillow have that number listed up for most properties.
I’d run this past an estate attorney. Basically, you’d be renting their house. If your parents have a major medical issue suddenly their house can be encumbered and possibly taken due to medical bills.
Also, a good CPA can discuss how this situation can reduce their, or your taxes depending on how the documents are set up.
Here’s what I did, I bought my father’s house from him, we went to a real estate attorney, and had a mortgage drawn up, and I paid him the value of the home, plus 2% interest. Sent him a payment every month. He had a trust, and when he died, I had not paid off the loan so I owed the trust the remainder of the loan. All of the children, 5 of us were left even amounts in the trust,so I could either keep the house and get no money from the trust, or sell it and pay what I owed the trust. I ended up selling and giving the trust the balance due, which I then got my share of. Just make sure whatever you do you use an attorney, and your sister is on board with it, less hassles later, and no hurt feelings.
That mortgage makes me upset even tho it shouldnÔÇÖt, IÔÇÖll never own a home but I have to remember IÔÇÖm *NOT* bitter against people who simply had better fortune than me- IÔÇÖd have jumped on that mortgage too ƒÿ®
IÔÇÖd urge you to talk to an estate planner and have an actual plan in place if you plan to inherit this home. Unexpected medical issues and long term care expenses can quickly eat up a homeÔÇÖs value. Estate planner can guide your family into taking the right steps now.
I just want to say , as Canadian, can I please rent a place in rural Wisconsin? Rent for a 2 bedroom here is easily $2,000 and up!
“Fair” would be market rate rent for the house.
Considering that when your parents pass and you inherit the house, you may want to continue living in it. It might be a good time right now to discuss with your sister how she intends to, if she does, sell you the house.
Work it all out right now so that when the house is inherited, you can settle it with your sister as well without any headache.
Get everyone on the same page and do a living trust. Then if you want to pay your parents rent than do it or build them a little place next to yours so they can be close to their grandbaby and you can be there if they need you. And work it out that the little house and two acres goes to your sister and you get the big house with one acre of land.