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Six Issues to Consider Before Acquiring Your Parents’ Home

Six Issues to Consider Before Acquiring Your Parents’ Home

April 09, 2024

If you and your parents are discussing having you either purchase or inherit their home, there are many factors to consider. Here are six things to think about to make the process smoother and less taxing—both emotionally and financially.

1. Your parents' wishes

Any family home comes filled with memories and emotional attachments, so your first consideration should be your parents' wishes and feelings about moving out of this property. Communicating openly about their preferences, needs and concerns will help them feel supported in their decision, set the stage for a smoother transition, and help align your family members’ expectations. 

2. Their future plans

It’s crucial to consider what will happen to your parents after they move out of their home. Will they be able to live where they want to?  Will they have enough income to pay for rent and living expenses?

3. Their healthcare cost concerns

Is one reason your parents are thinking about selling their home is because they’re worried about having enough money to pay for future long-term care needs, especially if they will be moving to a nursing home or assisted living facility? There are alternatives to selling, such as accessing home equity through a reverse mortgage or purchasing insurance for long-term care expenses. Careful financial planning, possibly with a professional, can help preserve the family home while addressing the financial demands of care.

4. Tax implications

One of the biggest concerns when transferring or purchasing a home is the potential tax liability. Depending on the value of the property and the circumstances of the transfer, there may be gift tax, estate tax, or capital gains tax implications to consider. It's important to consult with a tax professional to understand the specific tax implications of any transaction, explore strategies for minimizing tax liabilities, and ensure compliance with current tax laws.

5. Your own costs

In addition to the tax considerations, it’s important to budget for mortgage rates, closing costs, transfer fees, appraisal fees, and the expense of ongoing maintenance. If it’s a multi-family home or has rental units, are you prepared to be a landlord? Consider future scenarios before you finalize the decision.

6. Estate planning considerations

If your parents want to pass on their home to you, they may want look for ways to avoid probate, which is the often time-consuming and expensive legal process of distributing a person's assets after they pass away. One way they may be able to avoid probate is to transfer the home into a living trust. This way, they can ensure a smoother, simpler transfer of ownership to you after they pass on. There are several types of trusts, each of which has its unique benefits and drawbacks. It's important to consult with an estate planning attorney to determine which type of trust is best for your parents' specific situation.

Purchasing or inheriting your parents' home can be a complex process, with many legal and financial considerations to keep in mind. By working with qualified professionals, such as attorneys, financial advisors, and tax professionals, you can ensure that the process is done correctly and in the best interests of all parties involved.

 

 

 

 

Dan Flanagan is a financial advisor and Partner located at Canby Financial Advisors, 161 Worcester Road, Framingham, MA 01701. He offers securities and advisory services as an Investment Adviser Representative of Commonwealth Financial Network®, Member FINRA/SIPC, a Registered Investment Adviser. He can be reached at 508.598.1082 or dflanagan@canbyfinancial.com

  

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