Buying a house with an elderly parent can be both a fulfilling and occasionally challenging journey.
It’s important to understand all of the factors involved when making such an investment together, as it will have long-term financial and emotional implications for both you and your elderly family member. We’ll explore 10 key important aspects of the process you should be aware of.
Key Takeaways
Buying a house with an elderly parent can provide certain financial and emotional benefits, like tax deductions, shared living expenses, and emotional support.
Buying a house has risks involved, like potential disqualification from Medicaid benefits, loss of privacy, and certain financial risks.
If you choose to live with an elderly parent in the house you both purchase, it’s important to practice clear communication and have reasonable expectations with them.
5 Advantages of Buying a House With an Elderly Parent
Purchasing a house with elderly family members can be mutually beneficial for all involved parties. They will get security and stability, and there may be financial advantages they wouldn't enjoy otherwise.
The advantages for you and your family member include:
Tax Benefits
Purchasing a house with an elderly family member can prove beneficial for tax savings. If they meet certain criteria, you may be able to claim them as dependents and reduce the amount of taxes due on your return.
For example, if you buy a home for an elderly parent, it will count as a vacation home, and the mortgage interest and property taxes will be deducted up to $1 million.
Shared Living Expenses
If your elderly parent has some income or savings, then you may be able to share living expenses. Sharing living expenses when buying a house with an elderly parent can be beneficial for both parties.
Together, you can purchase a larger and more comfortable home than you could afford on your own, as well as help spread budgets further, especially for older people living on fixed incomes.
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Care and Support for a Parent
Buying a home and living with an elderly parent can make it easier to provide care and support. This is especially important for an elderly parent who may require assistance with daily activities or have health issues that need constant monitoring.
Furthermore, caring for and supporting your a parent can help prevent feelings of isolation and loneliness common among elderly people.
Emotional Support
Having a family member living with you brings emotional benefits for both parties involved. An elderly parent may experience grief, depression, or anxiety, and having an adult child to provide comfort can be a great source of support.
At the same time, you may find solace in sharing your worries with someone you trust, a parent.
Avoiding Probate
Another major advantage of buying a house with an elderly parent is that it can help you avoid probate if you do a joint tenancy with rights of survivorship. Probate is the legal process for settling the estate after death.
If you own the property jointly, your parent’s share will automatically pass to you upon their passing without having to go through the court system. This will save you a lot of time and money in the long run, by avoiding going through the court system to claim the property.
5 Disadvantages of Buying a House With an Elderly Parent
Before agreeing to buy a house with an elderly parent, there are a few downsides you should consider to avoid straining your finances and relationship with your parent. Here are five disadvantages of purchasing with them:
Medicaid Eligibility
When buying a home with an elderly parent, it’s essential to understand how this may impact their Medicaid eligibility. In most states, qualifying for Medicaid requires low incomes and limited assets.
Owning part of a home could count toward their asset limit and disqualify them from Medicaid eligibility. The asset limits vary by state, but they are generally $2,000, with higher limits for states like New York and California.
Additionally, selling the home could count as an asset that affects their eligibility for Medicaid. To protect this eligibility, it’s important that consultation is sought with both an expert financial advisor and an attorney about ownership structure to make sure this does not threaten eligibility.
Loss of Privacy
Sharing a home with an elderly parent means you will have less privacy than if you were living alone or with only your immediate family members, and boundaries can be crossed. This can be particularly challenging if the elderly parent requires assistance with daily activities, such as bathing and dressing.
Respecting an individual's right to privacy during such activities is crucial. However, if an elderly parent requires assistance and cannot manage on their own, it may be necessary to assist.
Family Conflicts
Living with family can sometimes cause friction over finances, caregiving duties, household chores, and more. That’s why Dr. Regina Koepp, a board-certified clinical psychologist, recommends implementing some house rules. “You’ll be surprised at how many conflicts arise when these items are not clear upfront," she says.
Problems often compound when they involve an elderly parent whose health requires extra care and consideration. As part of any effective solution, both parties must remain mindful of each other's feelings and work collaboratively to find an amicable resolution.
Increased Caregiving Responsibilities
When living with an elderly parent, you may need to provide significant assistance in activities of daily living, transportation, and medical care. If you are unable to provide such assistance then you may need to hire a caregiver.
Financial Risks
Owning a home jointly with an elderly parent can have serious financial consequences, particularly if one or both parties have outstanding debts or liabilities that place the property at risk. If either person has debt, a judgment creditor could place a lien on the property, meaning you could lose it.
Consult a lawyer to ensure the ownership structure provides adequate protection for both parties involved in a property deal.
How to Buy a House With Elderly Parents
Now that you’re aware of the advantages and disadvantages associated with purchasing a house with elderly parents, let's discuss the steps for purchasing their residence.
The two most important decisions to make are regarding the joint ownership and mortgage details.
Two Main Types of Joint Ownership With an Elderly Parent
Joint Tenancy with Rights of Survivorship: This type of joint ownership allows two or more people to own a single property together, and if one party passes away, their share automatically transfers to the other owner(s).
This is a great option for avoiding the long and tedious court probate process as it ensures that the other owner(s) retain full ownership without going through the court.
Tenancy in Common (TIC): TIC allows two or more people to own a single property together, with the caveat that each individual’s share is separate and does not automatically transfer to the other owner(s) in case of death.
This is the best option if there are concerns about creditors or disagreements over inheritance wishes. In this case, estate planning documents such as wills or trusts should clearly outline how each person wants their portion distributed after they pass away.
Family Opportunity Mortgage
If you and an elderly parent are considering joint ownership, a family opportunity mortgage could be the perfect fit for your needs. This type of loan often requires a minimal down payment (5%), lower interest rates, and reduced property taxes.
The specific interest rates and property taxes will vary based on locations and the type of lender. Typically, the interest rates are around 7% for a standard mortgage, but with the family opportunity mortgage, some have managed to lower it to 5% or lower.
The process of obtaining this loan involves filling out a mortgage application, getting pre-approved, finding the right property for you both, providing all necessary documents to your lender, and finally closing on the loan.
To ensure smooth operation, it is advised to work with a real estate agent who has experience with joint ownership with elderly parents.
How to Move a Parent in With You
If you decide to live with a parent or both parents, it is important to discuss how this arrangement will be managed.
To ensure a successful transition, it is essential to discuss the details with your parent(s) to give them time to adjust mentally and emotionally for the upcoming changes. Talk about why it’s the best option for them and how it’ll be arranged.
Psychologist Koepp advises discussing some general house rules, such as expectations for chores, meal preparation, and finances. She explains: “It’s helpful if financial expectations are communicated clearly and honestly upfront. Nobody likes to be caught off guard, especially with money.”
It’s also essential to create a plan of how you will handle certain medical issues that a parent may be prone to, so that you are prepared if a situation occurs.
Sharing your emotions openly and honestly and encouraging the other party to do the same is the key to effective management. Make sure your parent can access support from family and friends when needed while giving them space if required.
What Can I Do With a Parent's Old Home?
If you are buying a house with an elderly parent, you’re probably wondering what to do with their old home. You may have to sell or rent it.
First, consider selling the home either with or without assistance from a real estate agent. Selling will provide an additional source of income that could benefit both yourself and your elderly parent.
However, you will need to consider the costs associated with hiring a real estate agent and any repairs required before selling your parent's house.
An alternative approach is to rent out the property as an investment opportunity. This will provide additional income that could come in handy should something happen to your elderly parent.
If you choose to rent the property, be sure to check local renting laws and prepare yourself for the responsibilities and expectations of being a landlord.
There are also other options like donating the home or parts of it, which can potentially be beneficial for tax purposes and provide some peace of mind knowing it’s being used for a good cause.
Tips When Living With an Elderly Parent
Living with an elderly parent can be challenging, so here are some simple tips that can make things easier for everyone involved:
Clear Communication
Clear communication is essential. It will help you understand each other better and reduce tensions. The key to clear communication is having an open path to talk about feelings respectfully.
They may not always agree with you, but this doesn’t mean you should become frustrated or dismissive of their opinions.
Reasonable Expectations
Your parent may not always have the energy or ability to do certain things, so it’s best to set realistic goals and expectations for them each day. Additionally, remember that needs may change as their health declines.
Be Patient
There may come a time when you two don’t agree on certain things or they forget things that you have previously discussed. It’s easy to get frustrated in these moments, but try to be patient. Practice active listening so you both feel heard and respected.
Provide Support
It is important for elderly parents living with their children to know they are still capable and valued. Allow them to be as independent as they can be while also providing support and guidance as necessary.
You can simplify a parent's late-life planning by using Trustworthy’s award-winning software and expert advisors to store all of their important documents and medical information in one secure location. The collaboration features and user permissions make it easy to share this information securely with people close to you.
Frequently Asked Questions
Can I buy a house from my parent for less than market value?
Yes, you can buy a house from your parent for less than market value. When your parent sells you a home below market value, it is referred to as a gift of equity, or they can simply give you the house outright.
What happens when you inherit a house from a parent?
First, you’ll need to consider how the property is titled. A joint tenancy with rights of survivorship and a tenancy in common have drastically different implications.
If it’s a joint tenancy with rights of survivorship and one passes away, then the surviving owner will take full ownership. If it’s a tenancy in common, then you’ll need to go through probate court if you want a chance at the title passing on to you. This may take more time and involve settling any debts or taxes owed.
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