Dear Liz: My father-in-law died recently. My mother-in-law is not well enough to live alone. My husband has a brother and sister who want my husband and I to buy my in-laws’ big old house for $ 1, take care of my mother-in-law 24/7, and do updates and repairs on the house for 60 years. I see many disadvantages to this arrangement, but no advantages. Can this deal work for us and not just for the other siblings?
Answer: The advantage is that you would own the house. While the home may not be in good shape, it is likely an asset with some value. Whether it’s worth enough to be worth, and whether you’d like to acquire it that way, are open questions.
If you and your husband buy the home for $ 1, the IRS will assume your mother-in-law gave you both her property, and that can be problematic. The difference between the home’s selling price and its fair market value would be treated as a gift for gift tax purposes, said Mark Luscombe, senior analyst at Wolters Kluwer Tax & Accounting. Your mother-in-law would likely not owe gift tax, but she would likely need to file a gift tax return and the gift would use up some of her lifetime gift and inheritance tax exemptions.
If the house is a gift, you also get their tax base. If she bequeathed the house to you and your husband instead, the house would receive a new, increased value for tax purposes. How big this could be depends on many factors including the state the house is in so you will need to consult a tax advisor for details.
On the other hand, taking ownership of the home before your mother-in-law dies ensures that you and your husband will actually receive that fortune. If it is left in a will, your mother-in-law could change her mind and leave it in whole or in part to someone else. If she doesn’t have a will, the house will be divided up under state law, which likely means your husband will have to share the property with his siblings.
There are other aspects to consider. Caring for someone else can be costly: According to a 2019 AARP study, caregivers spend nearly 20% of their personal income on expenses related to helping a loved one.
In addition, more than half of family caregivers adjust their working hours by taking time off, reducing their hours or quitting completely, AARP researchers found. In addition to losing income, you will lose promotions, job security, and opportunities to save for retirement.
Care is also associated with increased stress, poorer health, and an increased risk of death, according to the Centers for Disease Control.
Before taking on this role, consider hiring a geriatric nurse to help assess your mother-in-law’s needs and discuss alternatives. You can get recommendations from the Aging Life Care Assn.
When do you have to apply for social assistance?
Dear Liz, The general assumption seems to be that in most cases it is a good idea to postpone your Social Security benefits because the longer you wait, the higher your monthly benefits. I will reach my full retirement age of 66 years and 2 months in July. According to the Social Security Administration website, if I waited 66 years and 8 months to start collecting next February, my monthly benefit would be increased. The next increase wouldn’t be for another full year, at 67 years and 8 months. My current plan is to retire in March or April next year. Is there a reason why I shouldn’t start drawing my benefit once I’ve reached the 66 year and 2 month threshold?
Answer: It’s not clear what you were looking at, but your Social Security benefit pays a deferred pension credit every month that you postpone your application beyond your full retirement age. These credits add up to 8% annually, adding to your checks for the rest of your life.
Social security can be complicated and making the right decision about a claim is not always easy, but your choices can have a huge impact on your future financial security. Please consult a paid fiduciary financial planner prior to retirement so you can be sure you are doing the right thing.
Liz Weston, Certified Financial Planner, is a personal finance columnist for NerdWallet. Questions can be directed to them at 3940 Laurel Canyon, No. 238, Studio City, CA 91604, or via the “Contact Us” form on AskLizWeston.com.