If House is Only Asset in Estate, How Can Cash Be Raised for Heirs?
My friend wishes to leave me her mobile home but wants to make sure her stepchildren get some money. The value of the home is $800,000, and she wants me to have it in a way that she will not incur tax costs prior to dying. An attorney suggested that she leave the home to me but require that I pay $300,000 to buy it in order to make sure that there’s money to distribute to the stepchildren. I am concerned that my friend may need to access equity in the house should she run out of her long-term care insurance and her savings. I suggested that I could lend her $5,000 a month at a time that she feels she needs it, until it reaches $500,000, at which time the loan would be payable at the time of settling the estate. Can you see any problem with my suggestion other than the $500,000 may have been used up prior to death? Then what?
There are a few different ways this could work. One is for your friend’s will or trust to provide you with the option of purchasing her home for $300,000 at the time of her death. You would then have the option of doing so or not. If, in the meantime, your friend needed funds that you could advance, she would give you a promissory note and mortgage. The only complication here would be if you were to advance more than $300,000 which it sounds like you’re contemplating. In that case, the loan documents should probably say that any amount above $300,000 would be forgivable upon your friend’s death.
Another approach would be for you to pay your friend $300,000 now for a remainder interest in the property. She would still own a life estate in the home with the right to live there for the rest of her life, and the house then would not go through probate. You could still advance more funds to your friend as needed up to the $500,000 you are contemplating, but this technically would be in the form of a gift.