My 79 yr old mother is buying a house for me to live in. She is putting it in a trust. I will be making the payments to her in the form of rent, the trust will glean the tax benefits. When she dies, does the house have to be refinanaced or can the trust continue to make the payments, continuing to get the tax benefits( which can be redistributed back to me)?
Trusts exist in all forms, shapes and sizes. The answers to your questions should be found in the actual language of the trust created by your mother.
these things are usually governed by the trust document you should read the trust document it should provide you with your answers here
-----> real address on hobokeni or hobokenx
what kind of trust?
Lots of questions!
If you can ge the answers to these questions, I think we will be much closer to understanding and helping with your arrangement.
Good Luck.
The actual transaction, including the setup of the trust, has not been done yet. My mother has been pre-approved on the mortgage. Your questions cannot be answered yet but do bring up more to consider. My initila reaction is that she buys the house in her name and puts it in the trust.
my brother and I.
but assume they would be as well.
to get her additional income to make up from removing the down payment for the house from her portfolio. I get no equity but the trust does. I cannot afford to pay the mortgage and a down payment loan back, so the tax advantages (mortgage int., depreciation, etc) go to her as a bonus. As far as paying the payment to her or the trust they are one and the same so I see no difference.
house when she dies. I want the trust to continue owning the house and paying the mortgage. Any tax advantages can be redistibuted to me at the end of each year. I don't want to the house to be in my name for various reasons.
while she is alive. I hate to lose the tax benefits but I cannot qualify for the mortgage due to various reasons. These will change shortly but right now are an impediment.
If you can ge the answers to these questions, I think we will be much
That's normally an excellent response. But with respect to the specific question, it's less a question of what's in the trust and more a question of what is in the terms of the mortgage. Most mortgages (some states use deeds of trust) contain a provision that the entire loan balance is due when the property is sold or otherwise changes hands. Does that apply to a trust that continues to hold property after the settlor dies? Check the mortgage loan documents.
Stu
To "put it in the trust" would mean the trust would have to hold title (or rely on the will rolling it into the trust on death, but it's too big an asset for that to fly, undoubtedly), so that raises the question of whether the mortgage holder will approve that transaction I would think.
What, pray tell, is the end objective here? W/O that, seems essentially impossible to suggest anything other than _perhaps_ some mechanistic answers, but undoubtedly those would be very difficult to ascertain as to whether the end result of implementing them would be desirable...
I don't want to the house to be in my name for various reasons.
This is WAY too complicated for a DIY project, you're going to need a lawyer in the end anyway, and I'm not sure you want to be airing all details in such a public forum.
I suggest you and your mother (and any other interested parties) sit down and figure out exactly what you want to accomplish, then take that list to a good lawyer who knows taxes, including estate tax, or has access to such.
"puts it in the trust" is a problem. If she gifts it to the trust, she must file a gift tax return for the value of the house minus $12k (the annual exclusion amount). That could result in taxes DUE from your mother or it could reduce the credit her estate receives at her passing. Another option is that she sells the house to the trust at fair market value. She will have to extend a loan to the trust and charge a reasonable rate of interest. This will have tax consequences for ma. In addition, you will have to be sure that the trust generates sufficient revenue (from your rents?) to pay that mortgage.
between my brother and I.
I'm confused. So the asset she sells to the trust will be given back to her (or her estate) at death and then distributed to you and your brother through probate? Will your brother then own half the house and you the other half? Who then will cover any remaining mortgage balance to the bank (they may make you refinance at this point, I don't know)? Will the estate be large enough to run into estate taxes (you are adding the value of the property to her estate through this course of action)?
to get her additional income to make up from removing the down payment for the house from her portfolio. I get no equity but the trust does. I cannot afford to pay the mortgage and a down payment loan back, so the tax advantages (mortgage int., depreciation, etc) go to her as a bonus. As far as paying the payment to her or the trust they are one and the same so I see no difference.
trust will pay your mother the monthly mortgage payments each month. Your mother will get to DEDUCT interest paid on her mortgage to the bank (if she itemizes), but she will PAY taxes on the mortgage income paid to her from the trust. Unless the mortgage terms are skewed heavily against the trust, I cannot see how she comes out ahead. Also, specifically, where did the downpayment money come from? Did she liquidate investments that are going to have tax repercussions?
The last sentence in your paragraph above is terrifying! There is most certainly a difference and the IRS will eat you alive for co-mingling and/or treating them indifferently. Where the money eventually ends up is not as important as the route it took to got there. You need to think of the trust as a business that is entirely separate from your Mother. In your example, your Mother is essentially and investor in the trust and the trust is your landlord. You cannot "skip" the trust.
the house when she dies. I want the trust to continue owning the >> house and paying the mortgage. Any tax advantages can be redistibuted to me at the end of each year. I don't want to the house to be in >> my name for various reasons.
while she is alive. I hate to lose the tax benefits but I cannot qualify for the mortgage due to various reasons. These will change shortly but right now are an impediment.
Your past problems are your own and I respect your privacy.
My biggest question is this: Why have a trust at all? What is it adding? Why can't your Mother just buy a house and rent it to you? She would get all of the same tax benefits with half the headache. The trust sounds like a very unnecessary middleman in this case. She buys a house, she rents the house to you, your rent money is used to pay the mortgage. Bada bing, bada boom!
I see no benefit of holding in trust unless my assumptions above are way off. There may be some creditor protection reasons not mentioned, but that doesn't seem to be your focus. I suggest you run this plan by an estate lawyer and see what he has to say. I suspect you are overlooking some fundamental aspects of trust law that are going to throw a wrench in your plans.
Well, her accountant recommended the trust aspect, I don't know why. The further I get into this the more I think she should buy the house for cash and issue a mortgage to me at a rate between the money market rate and existing mortgage rate. Everyone is ahead then.
Don't you mean that you'll buy the house but she will provide the mortgage from her funds? If that's what you do, you get the tax break, deduct the property tax and mortgage interest on your taxes, as well as get a rate a bit better than market rates for loans. She will get interest better than today's fixed rates. She can put in her will that the mortgage is forgiven on her passing.
You may want to take a moment to call the accountant and ask what his thoughts were regarding the trust. Typically a trust doesn't save anyone on income tax, it's more a tool for estate planning and to bypass probate. An irrevocable trust can help one take advantage of the annual $12K/person gift tax exclusion.
JOE
Good thinking.
To help you get a game plan, does your Mother intend to buy the house
100% with cash or is she going to finance through a bank?A)If she is financing, she should treat you as a renter. She would get the mortgage interest deduction, depreciation, and all the deductions that go with being a landlord. You would get a roof over your head and a landlord that is easy to work with.
B)If she is paying cash, you could follow Joe's advice and have her issue a mortgage to you to buy the house from her. In that case you would get all the normal deductions of home ownership, and she would get an interest rate that is slightly better than the bank CDs and money market.
The second option will make things run smoother upon her passing. The loan could be forgiven and you would own the house outright. To make things equitable, your brother could be given other, comparable assets or half interest in the house. If, on the other hand, at her passing she holds a mortgage with a bank, you could possibly pay-off the loan with funds from her estate. If that is not feasible you would likely have to negotiate a new mortgage with the bank. I am not well versed on this last statement. Perhaps someone here could chime in.
I would have your accountant address all of the issues we have. If he can tell you what benefit you gain from having a trust involved, I would be very interested to hear it.
I don't see why. She could sell it to him on a land-sale contract. Under the contract he buys it from her, but title doesn't formally change until his loan to her is paid off. I haven't researched this, but it seems to me that he should get the property tax/mortgage interest deduction, since the set-up is analogous to a grantor trust.
Stu
The OPs post lead me to assume that they intended to give the tax breaks to the Mother as compensation for using her money as a downpayment. I am also not up-to-speed on the OPs creditor problems. That may or may not affect the "ownership status" he wants to employ. For that reason I gave a scenario in which he captured the deductions and another in which she did. One in which he was a homeowner and one in which he was not.
I did not intend those to be his only two options. Admittedly, real estate law is not my area of expertise. Your method may better accomplish his goals.
Given those assumptions, you're right. We need a lot more information to be able to give OP the best information for his situation.
Stu
Suggest you request a meeting with the accountant and your Mother. They can answer your questions - if they want.
My experience is that quite often the reason parents put assets in a trust has nothing to do with taxes and lots to do with the money management skills of the beneficiary. The fact that you can't get a clear answer from your Mother is a clue. Good luck.
-HW "Skip" Weldon Columbia, SC
First of all, thanks for your time. Second, I can get a clear answer from my mother. I am doing research first. Don't paint me with your brush of poor money management skills.
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