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Loan from a family member... any advise?

Discussion in 'Off-Topic Discussion' started by Hextall, Aug 12, 2019.

  1. Aug 12, 2019 at 6:30 AM
    #1
    Hextall

    Hextall [OP] Well-Known Member

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    My wife and I are divorcing (it's amicable... or at least as amicable as it can be), and we're trying to figure out who will buy the other out of our house equity. We have virtually the same salary and finances, and my wife is trying to buy me out. If she feels she cannot afford the new mortgage (current mortgage + paying me for my equity), then I would like to take it over. My mother is willing to loan me some money, but she already gifts me the max without declaring ($14k, she has basically been gifting me and my sister this for the past few years as part of our inheritance).

    Since the max gift is not enough, I thought I could get a loan from her. But I have no idea how to go about doing this so there's minimal tax implications for my mom. I would like to compare a loan vs. my mom giving me more than $14k and the tax implications for her.

    Has anybody done this? I do plan to talk with a tax lawyer, but thought I'd ask the collective experience here.
     
  2. Aug 12, 2019 at 6:38 AM
    #2
    PackCon

    PackCon Well-Known Member

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    Your mother is not a licensed lender, therefore any amount given to you is still a gift. However she can give you a gift under the unified estate tax credit. Work with a tax pro so you both understand how to claim this. She can gift her heirs up to the federally excluded amount of however many millions it is now (I think its just shy of 5 million).

    Although I would tell you never to loan or borrow money from family. Its not worth the fact that Thanksgiving dinner tastes different nor worth ruining a relationship.

    If you were a close buddy of mine I’d say avoid borrowing money. If shes going to give you the funds that fine.

    https://www.google.com/amp/s/www.posticbates.com/blog/estate-and-gift-tax-limits-2019?format=amp
     
    mojojojo78, whatstcp and Hextall [OP] like this.
  3. Aug 12, 2019 at 7:02 AM
    #3
    Hextall

    Hextall [OP] Well-Known Member

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    I've read about the >$14k gift up to $5.5 million... but all I can find is that she'll have to fill out a form if she say gifts me $15k... and that $1k reduces her lifetime gift potential. Does she also have to pay any taxes on that $15k (or $1k)? That's what I'm struggling to find info on and her most pressing concern.

    Even if we set this up as a loan, she's going through cancer treatments at 83 years old (lived longer than any other family member lived), so I'd likely be paying back the estate (of which I'll be the executor). She knows this too.
     
  4. Aug 12, 2019 at 7:25 AM
    #4
    PackCon

    PackCon Well-Known Member

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    No. She can gift all of her heirs a total of up to the federal estate tax exemption over her lifetime.

    It looks like its $11.8 million total. So lets say Mom is pretty wealthy and has an extra $5 million lying around. She can gift you that $5 million with zero tax implications (on a Federal level). That $5 million will be deducted from the $11.8 million lifetime estate cap. So at the time of her death she can give you up to $6.8 million tax free.

    I’ll be clear this is a federal tax credit. You will need to use a tax professional to ensure the gift taxes for your state don’t apply.

    Another note I do not believe you can count gifted money when applying for a mortgage as earned income. So lets say Mom gives you $5,000 per year every year as a gift. You cannot use the $5,000 as income to help qualify for a mortgage. You can only use it as downpayment money.

    You should be able to set this up as a federally tax free gift you just need to consult an accountant about if there are any state tax implications.
     
  5. Aug 12, 2019 at 7:35 AM
    #5
    Hextall

    Hextall [OP] Well-Known Member

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    That's the intent. I don't believe I"ll have any problem qualifying for a mortgage. This is just a way to get a lesser mortgage (or equivilent to what I'm paying now) after paying my wife for her equity.

    This all is very helpful, thanks for your comments.
     
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  6. Aug 12, 2019 at 7:39 AM
    #6
    Clearwater Bill

    Clearwater Bill Retire from work, but not from life.

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    IF you wind up being the buyer of your house, just put your Mom on the deed.

    Then it's her money into partial her property, no tax hoops to jump.

    When she passes it becomes your house. Nothing to pay back anyone.

    If there is an imbalance between you and sister because of this (like supposed to be 50/50), as executor just rebalance the distribution of other estate funds to raise her share and even up.
     
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  7. Aug 12, 2019 at 8:00 AM
    #7
    PackCon

    PackCon Well-Known Member

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    No problem.
    I’m sorry you are going through a divorce.
     
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  8. Aug 12, 2019 at 8:05 AM
    #8
    PackCon

    PackCon Well-Known Member

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    This is dangerous depending on how a will or trust is set up. If he’s got siblings he could lose the house upon her death. Because his siblings will have rights to that asset.

    Usually best never to quick claim a deed/deed change on a home with a mortgage. The bank always owns it until the last penny is paid off so it really serves no point. Plus homes typically fall under probate value requirements anyways so without a trust probate over the property can’t be skated.

    I would definitely consult an estate lawyer before doing any funky moves like this.
    Just to make sure everything is legally sound.
     
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  9. Aug 13, 2019 at 6:41 AM
    #9
    billum v2.0

    billum v2.0 Well-Known Member

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    Good advice here on several fronts. With Mom's age and net worth, consult an estate lawyer first would be prudent to navigate your state's estate tax system.

    My opinions are coming from that of an executor. Have been in those shoes multiple times for clients, family and friends. Obvious potential conflict of interest being a debtor to as well as the executor of Mom's estate. If I could impress anything upon you......make sure all your siblings are a part of any gift/loan/bequest between you and Mom BEFORE it's finalized and be highly sensitive to their input. This may be a business transaction in your and Mom's eyes, but siblings will almost always see it as something else. And it will come home to roost during probate once Mom has passed. Difficult enough to deal with squabbling family as the arms length executor, train wreck when it's your family. In one case, sibling spent tens of thousands $$$ litigating over a Hummel figurine. Proceed with caution.
     
    Last edited: Aug 13, 2019
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  10. Aug 13, 2019 at 6:48 AM
    #10
    TexAggie

    TexAggie Well-Known Member

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    Just my 2 cents, but I wouldn't borrow from a family member especially if you can qualify with a lending agency. I'm sure it will cost you less financially to do this but it turns your mother son relationship into a business relationship. Anyways, hope it all works out and sorry to hear about the divorce.
     
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  11. Aug 13, 2019 at 7:50 AM
    #11
    Dryfly24

    Dryfly24 Winning firefights/chained to a steering wheel

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    If the money is coming back at him anyway upon his mother’s passing, then I really don’t see any conflict. She’s in her 80’s and undergoing cancer treatments. Not to sound callous, but basically it’s just his portion of the money coming in a bit early.
     
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  12. Aug 13, 2019 at 10:36 AM
    #12
    jethro

    jethro Master Baiter

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    Siblings can complicate this situation.
     
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  13. Aug 13, 2019 at 10:54 AM
    #13
    toysrgood

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    The best way to execute this is with a "Joint Tenant with Rights to Survivorship, and not as Tenants in Common" or "Life Estate" clause on the deed. NO Probate and the interest the deceased has on the property transfers immediately upon death to the remaining owner. The only thing that needs to be completed to remove the deceased from the property is a recorded Death Certificate.

    Your state's laws may vary so this is something you need to research for yourself.

    Also, I am not a lawyer. But I deal with property transfers every day and this is, in my opinion, the best way to deal with survivorship issues without the hassle and expense of Probate.

    Edit: I googled a minute and came up with this for New Hampshire http://trombleykfoury.com/tenancy-in-new-hampshire/

    I am not arguing for or against this for OP. I don't know what their best course of action is as far as securing their property in the divorce.
     
    Last edited: Aug 13, 2019
  14. Aug 13, 2019 at 11:41 AM
    #14
    Dryfly24

    Dryfly24 Winning firefights/chained to a steering wheel

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    It might or might not depending on the family dynamics...
     
  15. Aug 13, 2019 at 12:02 PM
    #15
    Sudsman44

    Sudsman44 Well-Known Member

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    Seeking complicated financial advice. On a truck modding website. C’mon man.
     
  16. Aug 13, 2019 at 12:27 PM
    #16
    billum v2.0

    billum v2.0 Well-Known Member

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    The best of family dynamics can go off the rails when parent estates are settled.

    Sometimes it's about the money. Usually it's about a slight, perceived or otherwise.

    Siblings raise no objections while Mom or Dad are alive, for Mom or Dad's benefit. "Didn't want to cause a stir"..... then.

    Tread lightly. Communicate like explaining to a five year old. Make zero assumptions. Have siblings sign off (in writing) on everything that isn't equitable to the dollar. And getting a portion of an inheritance "early" has value if other family members have to wait.

    Probate litigation is extremely unpleasant.
     
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  17. Aug 13, 2019 at 12:41 PM
    #17
    Dryfly24

    Dryfly24 Winning firefights/chained to a steering wheel

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    Yes, agreed that it can. Like I said it might or might not depending on the family dynamics...
     
  18. Aug 13, 2019 at 12:44 PM
    #18
    billum v2.0

    billum v2.0 Well-Known Member

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    Agreed. So, how do you know?
     
  19. Aug 13, 2019 at 12:54 PM
    #19
    Wyoming09

    Wyoming09 Well-Known Member

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    Deal with a private local bank!

    Have Mom put X amount in CD`s you pay 1% over the going rate the Bank pays on the deposits.

    The CD`s are collateral the house does not enter in as the note is payed off the CD`s are then released

    Mom gets Interest you pay a little



    Low Interest every one is happy .

    You can pay as much on the principal every month as you want.

    That is what I did for my divorce

    Ex gets her money
     
  20. Aug 13, 2019 at 1:09 PM
    #20
    Dryfly24

    Dryfly24 Winning firefights/chained to a steering wheel

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    Because I’ve seen it go both ways involving different families.
     

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