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Question:

My mother’s house burned down and she and my brother mismanaged the insurance money, so it wasn’t rebuilt. My fiancee and I would like to rebuild it. We’ve talked with my mom about this and she is willing to sell us the lot with us paying over time, but my fiancée is afraid if we make it happen then the rest of my siblings are to want to be involve or if my mother will start changing her mind (it’s a mess really). (I grew up in that house so have many memorys. I knew how hard my dad worked; he owned his own roofing company. He only had a 2nd grade education but when it came to roofing he knew it like the back of his hand. I feel as if I just can’t walk away and lose the property to back taxes.)

Moving forward, I can build the house from the foundation to the roof. My question is whether there’s a way to have everyone butt out so my fiancée and I can do what is needed to get the funding to fix the house with borrowed funds and have mom live out her remaining day in her own home. I’m just learning about trusts, that there are so many, and also each type works differently. Would a trust make sense in this situation?

Response:

If I understand what you’re saying, your family house burned down and your mother still owns the land. You’re concerned about what will happen if you rebuild the house on land that is owned by your mother and for which your siblings may feel they have a claim. It sounds like you want your mother to be able to live in the house for the rest of her life, but it’s not clear to me what you have in mind after her death, but I assume at that point you would either own the house or be paid back for your investment plus interest.

My first recommendation is that you talk this through with everyone in the family before you move forward. Otherwise, there’s almost certain to be suspicions and misunderstanding.

In terms of how to structure the arrangement, there are a number of possibilities depending on the ultimate goal. Here are three options:

First, you could, in effect, lend your mother the funds necessary to hire you to do the work. She would sign a promissory note to you and you would secure the obligation through a mortgage on the property. The problem, however, is that this could get messy since it might not be totally clear how to value the work you would do on the house. The advantage of your doing the work is that you can do it at a lower cost than an independent contractor. The disadvantage is that there could be disagreements about how much lower that should be. Again, it’s best that everybody be on board before you move forward.

Second, your mother could create a life estate by deeding the property to you but keeping the right to live in the property for the rest of her life. This would give you an ownership interest in the property, to make sure you are ultimately repaid for your investment, while also allowing your mother to control how the property is used during her live.

Third, a trust would allow for a more nuanced solution. For instance, it could provide your mother the right to live in the house for the rest of her life and divvy it up in various shares upon her death, recognizing your contribution to the house construction. Or it could give you the right of first refusal to purchase the house at a specific price or at a discount off of fair market value.

It’s also possible that a combination of these approaches might work, for instance a life estate for all the family members combined with a promissory note and mortgage. But the first step is to clarify your goals. The actual structure can follow from there.

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