Does it make sense for me financially if we co-own the property? We’ve discussed this, and she’s committed to doing what makes sense to me. Her goal is to make sure I can afford to live in the house after she’s gone. Your thoughts?
AN: Your sister wants to give you an important gift: a fully paid house. All she would have to do is maintain it, pay utilities and property insurance, and pay property taxes. If the house is modest, the taxes probably are too.
Houses require repair and maintenance from time to time. Someone will have to manage the garden, clean the gutters, shovel snow, and fix, repair, or replace things that break, like light bulbs and kitchen appliances.
More matters: what house documents do you need to scan now in case your property is destroyed in the future
In fact, your sister knows how much all these items cost because she is paying all those bills. If she’s willing to give you the house, she’s probably willing to discuss how much it will cost to keep the property running.
This is what we ask ourselves: Where do you live now? If you live with your sister and she will leave the property to you when she dies, then it shouldn’t be too difficult to have a conversation about costs.
On the other hand, if you live somewhere else and could continue to live somewhere else, your sister’s house could become an income-generating asset for you to build on in retirement. Renting out the property could generate income that you could use to support yourself after she’s gone.
Even though she wants you to live in the house after she’s gone, it may not make sense to you socially, emotionally, or even physically. Another idea is to sell the property. If you sell it within a year of receiving it, the proceeds must be tax-free. That can also help finance a more comfortable retirement.
More Matters: Options for Buyers When They Learn the Seller Concealed a Major Problem on the Home Disclosure Form
You asked a question about co-ownership. There is no reason for you to co-own the property today. As we’ve written many times, it generally makes more sense to inherit real estate rather than have someone give it to you.
If you are concerned about the cost of the estate, it might make sense for your sister to set up a trust and put title to the property in the trust’s name. Then she must name him as the successor beneficiary of the trust. When she dies, the house will automatically pass to you, along with anything else titled in the trust’s name, such as checking or savings accounts, or other assets.
Another option is to create a transfer on death (TOD) instrument, which allows your sister to designate you as the beneficiary of the home after her death. You would file this TOD with the Registrar of Deeds office in the county where the property being transferred is located, in this case, DuPage County. This document would also allow you to avoid probate. Twenty-nine states plus DCs allow you to create a TOD (or beneficiary deed).
Your sister may have already chosen one of these methods to transfer her home to you after her death, but if she hasn’t, you may want to bring it up. Talk about her estate plan and ask her for the name of her estate attorney, tax preparer or accountant, financial planner, and banker, if she has one. Make sure she has appointed you her financial and health care power of attorney, so that you have the right to make decisions for her if, for any reason, she is unable to do so.
At the end of the day, it seems that your sister has invited you to have a conversation about your future after she is gone. We think she should accept it, sooner rather than later.
Ilyce Glink is the author of “100 Questions Every First Time Home Buyer Should Ask(Fourth Edition). She is also the CEO of Best Money Moves, an app employers provide to employees to measure and reduce financial stress. Samuel J. Tamkin is a Chicago-based real estate attorney. Contact them via of your website, bestmoneymoves.com.