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Should you buy your parents' home?

Be honest with yourself

Before you even think about buying your parent's house, be completely honest with yourself. Is your relationship strong enough to withstand the potential disagreements that may arise during the process?

Similarly, if youve got siblings, youll need to carefully evaluate your relationships with them, too. If one of them feels cheated or left out because of the deal, you could be setting yourself up for a rocky road ahead.

Keep in mind that there is a saying that money is the root of all evil, says Dino DiNenna, a real estate agent in South Carolina. It is always better to have a family than to have a house without a family.

That sentiment rings true as we work with scores of folks moving to Delaware to enjoy our beautiful natural resources and low taxes. Based on what weve experienced, we offer three points to consider in your decision-making.

Are you buying a home where youll be happy, or trying to fix a problem?

Where you live has a tremendous impact on your health, wealth and happiness. You might crave lots of natural light to feel more upbeat on winter days. Or be willing to pay a premium for a home within an easy bike ride to the beach, a rare location thats bound to increase in value over time. And if youre still working full-time you might want to eliminate the stress of a long commute. 

In other words, think carefully about what you really need. Then think about how it aligns with where your parents live. 

Would you be buying the house to live with your folks as a caregiver, thereby enabling them to stay in the home they love? If so, you could be looking at a temporary situation that works for all of you. 

Are you thinking about making this move to simplify their transition to another type of housing? If thats the case, you need to be honest about how happy youll be living there, and talk with a qualified agent about the costs and benefits of putting the place on the market instead. In many parts of Delaware were still in a sellers market, so think about taking advantage of that to strengthen the finances of your parents and the rest of your family as well. 

Or think of it this way: Buying or taking over a home can inspire comfort and pride. But selling a home can inspire a healthy sense of freedom. Whether youre aiming to preserve family memories or comfort your folks, you have to remember this is a financial decision that can have a long term effect on your life.

And about those siblings . . . 

Family relationships tend to be complicated. You might think you understand how your brothers and sisters feel about you taking financial responsibility for, or reaping the financial benefits of, your parents investment. But wouldnt it be better to talk with them directly?

You might also need to ask your parents to speak with complete candor about their wishes. Are they offering to sell you the house because youre the oldest? Or the most responsible? Or because they simply see you as the kid wholl take the best care of the place?

Of course their views are important. Theyre youre parents, and its their house. But that doesnt mean you should automatically bow to their wishes if its going to lead to animosity with your siblings. There may be other ways to respect your folks wishes and maintain the peace.

If finances are the driving force, consider other options.

If youre reading this post primarily because the decision to buy your parents house is mostly about protecting your finances or theirs, there are four options to consider. As noted in this post from Elder Law Answers, your mom and dad can:

  • Leave the house to you or your siblings in their will, which will enable them to avoid estate taxes as long as their property is valued at $12.06 million or less. If youre thinking of this, make sure you understand the Delaware state tax implications. 

  • Gift the house. As long as the property is valued at less than $12.06 million you probably wont have to pay a federal gift tax (although youll still need to file a gift tax form). This is primarily a good option if you intend to live in the house for a long time, because you can end up paying significant capital gains taxes if you sell it right away.

  • Put the property in a trust. If your folks do this and name you or your siblings as beneficiaries it wont be part of your estate when you die, which means your estate wont pay taxes on the transference of the property to you. As noted in the blog post though, the property cant be taken out of the trust later. You can sell it, but the proceeds will stay in the trust.

Finally, make sure you understand the ins and outs of buying the property.

Your parents might be considering selling the house to you at below market value. If so, the difference between market value and what you pay will be considered a gift. As discussed in the elderlaw post, youll need to consider gift tax implications.

Your parents might also sell you the house at market value, but hold a note on it and use an annual gift tax exclusion to help you make the payments. This can be complicated, so make sure you consult a qualified financial adviser to determine the ultimate costs and wisdom of doing so.