Buying Subject to with an attached Life Estate

[Haven M.]

Hey All,

My wife and I are looking to buy my wife's grandmother's house in Massachusetts and grant her a life estate. Given the interest rate increases recently, we would like to buy it subject to her current mortgage and be able to give her some cash in process. Does anyone have any experience with this type of situation?

[Bill B.]

You might find a better way with an estate planner, something I might rarely suggest as real estate usually isn’t their expertise, so maybe just a smart lawyer. 

What I’m thinking, and only because this is a relative and not a stranger. You’d be financially way better off if you found a way to inherit the property instead of buying it. Something along the way of placing a lien against it and giving her cash. Maybe you put a lien against it, giver her the cash and then she lends some of it back to you where the interest you any her is exactly the mortgage payment. 

This is all assuming there’s a bunch of equity. More than the $250k she can take tax free. The advantage is your cost basis is also set hopefully far in the future when she passes, further lowering your tax liability. This also avoids any possibility of the lender calling the loan due. I don’t know how a Medicare claim would affect either plan. Get an expert involved if there’s more than $100k in equity. Good luck.