What to do with Grandma's house?

What to do with Grandma's house?

Published | Written by Sarah McCormick

Originally published September 13, 2010

For eighty years this was the family home. Grandma and Grandpa settled here in the 30’s, Mom was born here, holidays were spent in the dining room and on the front porch. Lots of memories in this old house. Now Grandma has passed away…what to do? 

Sometimes this is a purely emotional decision. When this happened in my family, my father chose to keep the house for a few years — nearly 10 — until the pain of letting go of his mother’s long time home had grown less severe. Since that happened just before the boom-boom aughts, it worked out okay (he sold in 2006, pre-bubble). 

Other times, there’s a desire to keep the home in the family for someone to use — a grandchild, or perhaps the children of the grandparent. 

I had a call the other day from a college friend, who long ago had left his small California hometown in his tracks to pursue his fortune elsewhere. After a stint in Law School, and some time working in a high level position in Washington, he was ensconced in high paying consulting gig. When Grandma passed away and his mother made it known that she’d like to live in the family home, he offered to buy it from the estate — for cash. After all, it wasn’t a big amount of money to him and it would allow mom to stay in the home. No investment motivation — just wants to do something nice for mom. 

However, I look down the road a bit. If he buys the house for today’s value — $85,000 — and in 20 years, somehow it’s worth $200,000 — there could be resentment when his mom’s estate has nothing to pass onto my friend and his two siblings. He’ll own the house and get 100% of its then considerable value (deservedly; he’s laying out the cash now). 

I suggested an alternative: Instead of buying the place, use the cash to fund the purchase for his mom; act as her bank.  Have her pay whatever nominal amount of interest the IRS requires to avoid gift taxes (3%?). So for $250/month she gets to own the house; he gets to enable that.  And if she wants to sell it at any point, or if she leaves it to her estate, there’s no issues about him getting too much of a benefit for the bargain — since he has no profit motivation here anyway, it’s not the bargain that he wants. In addition, he relieves himself from having any of the burdens of ownership (liability, maintenance, tax payments, etc.). He just gets to grant his mom’s wish to keep the house in the family.

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