Buying my grandmother's old home?

Question

My family is in a weird spot right now with my grandmother and her estate.  She is not in good health and needed to go to an assisted living facility.  My mother has been managing her estate and is getting tired of managing the home.  She is still figuring out all of her legal options but it is difficult because my grandmother did not want to leave her home to go to assisted living.  She is still insisting that she go back home but she is not able to take care of herself there.  I talked briefly with my mother about potentially purchasing the home because it would probably be a more acceptable to my grandmother than selling it to a stranger.

My question is: would it be appropriate to purchase the home?  There is a lot of nuance that goes into this that I don't need to dump on you guys but in a way it is the kind of sale a lot of people look for.  My wife and I are also looking at buying our first home (we live in Fort Collins and my grandmother lives in Pueblo).  I know there are a lot of details we need to consider in terms of numbers but I was hoping for some sage wisdom from all of you.  I am cranking this post out pretty quick on a break at work so I apologize for any missing details.  Thanks!

Bob H. · Answer

Carefully look into the tax consequences. Disclaimer, disclaimer, disclaimer, I'm not a tax lawyer, etc. But my understanding is that, if the home has appreciated in value -- maybe by a lot -- your grandmother will have to pay a lot of that increase to the government in capital gains tax, leaving her with less than the value of the home. On the other hand, if she dies, whoever inherits the home will get a stepped-up basis and not owe capital gains tax on the appreciation during her lifetime. That's the case unless the new Democratic Congress changes the law.

Anthony Bratina · Answer

My grandmother has a lot of money that is currently being used for her care.  I am not sure how inheritance works but the original plan was for my mother to get the house but she is tired of managing it and my grandmother wouldn't give it up right now because she wants to go back to living in it.

Lynnette E. · Answer

If your grandmother able to fully pay for her current living situation or is she using medicare/medicaid or some other program?

if a government program is paying for her care they may have an interest in the house already.  They-the government agency- may also take most of the money she gets from selling it for her care.

Before you do this, please talk with an elder care attorney.  Attorneys that specialize in this area can assist you in doing the sell so that the money can be used for your grandmother-things like new clothes-rather than just being swept into her medical care.

Also before doing this get the best, most nit-picky house inspector that you can find and have him do a complete inspection of the house.  This will let you justify a lower price than a new, updated, perfect house.  The price can be scrutinized when the government is paying the medical bills.

Mary Cronin · Answer

Usually better to inherit than buy.

RE investing has tons of tax issues - should be a subject to be studied if you're just starting out.

P/A may cause questions down the line - make sure to do contracts and approach FMV or sale could be a problem. You may want an appraisal to CYA.

Anthony Bratina · Answer

My mother is power of attorney and can make decisions regarding the estate.  Like you said, I am thinking it to be a win-win situation since my grandmother gives her house to someone she knows and trusts and I get an investment property.

Another thing that didn't make it into the original post: is it possible for her to gift me the house or sell it at a reduced price?  I don't know how taxes and other things work.  I heard the term "fair market value" thrown around in a few conversations.

Mary Cronin · Answer

Consider buying it with a life estate for grandmother - and a lease to grandmother for time being. It might calm her if she knows she has a right to it for her life (though it sounds unlikely that she will be going back).

Talk to a local attorney about this. It would not work for an arms-length sale to a stranger, but it might be a compromise for you. (Keep grandma happy & buy an investment for yourself.)

Jonathan Greene · Answer

If you grandmother didn't want to leave, who is selling the home? Do they have a power of attorney or something signed to act on behalf of your grandmother? If not, the home isn't being sold unless she wants to sell.