An I being too greedy?

Question

Hey everyone, I own the remaindership interest in a single family home. The person who owns the life use is in a nursing home now and she is 85. The family asked me to buy her life use for $35k. I'm thinking no way. I wasn't planning to pay anything more to take over the property. I was planning to wait until she passes. What are your thoughts? Should I buy her out so that I can get the property sooner and help the family out or should I let them deal with the issue?

Chris Coleman · Answer

@Mat O'Grady first of all, you seem like a good person for considering this and even asking the question.  Many people would not even consider helping this family that they don’t even know if it’s not in their best interest.  But you are considering it, so good for you.

If you have the means to help someone in their time of need, then yes, you should always try to do the right thing for the right reasons, and you will find blessings by doing so.

But we know these issues are not always black and white, and sometimes you have to discern the details to know what’s really best to do.

In this case, I would ask a few question, like:

1. Do you actually have the $35K to purchase the property?

2. What does the family actually need the money for right now?  Will they use it wisely for a true need?

3. How much is $35K relative to the value of the property today?  For example, would $35K be overpaying more than what a 20% downpayment would be?

Finally, if you’re married, then I recommend that you and your spouse be in agreement about this as well.

Again, I believe the fact that you even posted this question shows that you’re not a greedy person. But maybe try to get to know the family a little bit, answer the above questions, and trust your gut on this one.

James G. · Answer

@Mat O'Grady I don't think it's a question of greed. Do you know this family personally? At the end of the day, the more you can take emotions out of the equation, the more successful you're going to be. If you feel a moral obligation to help the family out, that's up to you. But you're asking if you're being "greedy" or if it's a good business decision.... The answer is simply no

Marian Smith · Answer

I am not a lawyer but the lawyer we hired to help my brother wasn’t worth crap.  So I will just give you some food for thought.  It is possible the sales price of the life estate however much will go to the nursing home and the ex-owner will qualify for aid once the money is gone.  So it is neither here nor there for her.  BUT it is for the government so they assign a value so she does not cheat in some way....sell to relative or money under table, etc.  So if 1) you are not a relative, 2) the family tries to sell the life estate and 3) it will not sell for 35k then by the definition of market value, market value is less than 35k.  That may work if you do not feel the 35k is fair to you.  I have seen life estates that state that after 180 days in nursing home the life estate ends.  That would protect the remainderman from years of delayed maintenance, unpaid taxes and whatever else.  The government, as much as it appears to the contrary, has sensible regulations.  There has to be a fair solution...and maybe 35k is fair but I don’t ćlear that much on my rentals...1k month if she lives 3 years. I wish! She probably has lower odds than three years, sorry to say but they use actuarial tables and it is a fact or factoid.

Mat O'Grady · Answer

@David Dachtera @Keith Hackett @Colleen F.

Thanks for your thoughts everyone. I appreciate your input.

Colleen F. · Answer

Another way of looking at this is what is the value to you of getting the property sooner?   Will it be income or flip?   If you want to turn this into something sooner rather then later consider that. She could live 10 years or two. You could have bought this 1 or 10 years ago so that may figure into your decision on you total investment.

Life interest and medicaid eligibility tables are based on the persons age and the property value. This is what the government thinks a person leaving the asset "early" is worth. As for value I don't know what happens if you don't pay that value.  Consider having your lawyer look into the value if you do this so you pay no more then that calculated value at the time of sale.   This must have happened before to someone.

Keith Hackett · Answer

@Mat O'Grady treat others how you want to be treated. Also consider would you want this family to financially hurt themselves for you? It’s not about helping or not helping so much as how much help should given. Just an opinion.

David Dachtera · Answer

@Mat O'Grady,

If you are asking the question, start by re-examining your values and your financial goals.

That said, would the family be served better by you renting it out and sharing the rental income with them?

You'd want to have an attorney draw up that agreement.

If Grandma lives to be 100, for example, and you paid them $200 / month, that would be roughly the same as $35K at 0% for 15 years. Add some interest to that and you can calculate a shorter term to pay that off.

Then again, if you have the $35K to pay "up front", that might help them cover Grandma's expenses.

See what the family needs and go from there.

My $0.02 ...

Understand this about reverse mortgages: when the owner dies, the loan balance must be paid in full. That usually means selling the property and hoping you can get enough to make the lender whole. Can be risky.

Mat O'Grady · Answer

@Marian Smith I don't know about the movie. I don't know what the family is going to do with the house. The mother has use of the house until she passes, but she has been put into a nursing home. The mother is still responsible for the taxes, insurance, maintenance and repairs. She is not going to be able to take care of all those things anymore, so there is an advantage for me to purchase her life use interest. I just wasn't planning on paying anymore for the property, but I am thinking I am going to end up buying it. It would make financial sense for them to rent the property out. It is in a good location and the rent would cover the expenses, but since she is going to a nursing home all the income would have to go to the nursing home. So, they probably don't want to deal with it for nothing.

Their lawyer told me that the family would not be able to apply for medicaid for the mother if they sold the life estate for less than what the state deems it is worth using a table to calculate the value. She says it is worth $35k. She says they can't take less than that. I talked to a few different lawyers and I have gotten conflicting information, but most of them said that the medicaid for the mother will not be affected by the life use.

I don't believe my situation is common. I don't know why she didn't get a reverse mortgage.

Marian Smith · Answer

@Mat O'Grady  Wasn’t there a movie about a guy who bought an apartment in Paris with a life estate and he waited forever?  What is going to happen to the house’s condition while vacant (or will family rent out the house while life estate holder lives) and will the life estate holder be required to pay taxes?  Have you run the numbers on renting out the house?  If you show the net profit, they may lower the price to save the hassle/effort of getting a pm and renting it themselves. You would gain early control, which is worth something.  Are you related or did you buy the remainder share?  Is this common?  Why didn’t they get a reverse mortgage...just interested.

Mat O'Grady · Answer

@Chris Coleman @James Gleeson @Jacob Sampson

Thanks for the thoughts and questions. I appreciate it.

An I being too greedy?

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