Friend Maybe Receiving House From Grandfather's Estate

[myrdale]

In other posts, I've mentioned a friend who's come to me with financial questions in the past. They were living in a house owned by his wife's grandparents, but recently move into an apartment. They are barely a month into a 24 month rental agreement. Over this past weekend his grandfather died.

The grandfather has left ownership of his own house to his two sons (my friends father and uncle), split 50 /50.

The uncle has no kids of his own, other than grown step-kids.

My friend has said his father and uncle have decided to sign the house over to him.

Assuming this goes through, is it that easy? Or is my friend going to owe taxes since he is receiving from his father and uncle rather than directly from the grandfather in the will?

He claims his landlord is flexible and is willing to tear up the 2 year rental agreement.

He has to make up his own mind, but I am not convinced he should consider moving into the house unless it is fully deeded over to him. If it stays split between his father and uncle, other than living there rent free it's no different than his old situation.

[bjl584]

I'd think inheritance tax would be paid by whoever the property was willed to.
The 2 sons of the grandfather in this case.

The 2 sons would have to sell the house to your friend and his wife, or, like you said, they would just be living there rent free

I'd want an option to buy before I moved in

[Like2Plan]

Assuming the property was dealt with in the will, one thing the father and uncle could do is to disclaim the house portion of the estate. It would then go to who was next in line to receive it (according to the grandfather's will). If it was the grandson, then your friend would be all set. They should consult with the estate attorney just to make sure there wasn't something in the will that would prevent it going to the grandson.

It might take some time for the property to get the ownership transferred as it will have to go through probate. My BILs lived in their Mom's house while the will was being settled. One was the executor, so he just maintained all the accounts that were already set up. I don't know if your friend would be able to get insurance and set up all the utilities for the house if he moved in before the property was transferred over to him, so that would be something to check on.

[disneysteve]

So the father and uncle don't want a penny of this house? Seems odd to me unless they're both wealthy. They now legally own the home so they need to sell it to the son. Unless the will has the son as secondary beneficiary as L2P mentioned and the father and uncle can disclaim it and let it pass to the son directly.

[myrdale]

So the father and uncle don't want a penny of this house? Seems odd to me

I don't disagree at all, hence why I stated "Assuming this goes through...."

[myrdale]

They should consult with the estate attorney just to make sure there wasn't something in the will that would prevent it going to the grandson.

This was my advice to him.

[james.hendrickson]

He has to make up his own mind, but I am not convinced he should consider moving into the house unless it is fully deeded over to him. If it stays split between his father and uncle, other than living there rent free it's no different than his old situation.

Myrdale - um, your friend is in an excellent situation. He gets to live rent free, and he gets a big chunk of equity. Even if he does have some tax liability coming out of it, its still a great thing for him.

[disneysteve]

Myrdale - um, your friend is in an excellent situation. He gets to live rent free, and he gets a big chunk of equity. Even if he does have some tax liability coming out of it, its still a great thing for him.

It's not that simple, James. If he gets the house but owes taxes on its value, does he have the means to pay those taxes. And yes, he'll live "rent free" but owning a home isn't free. Can he pay the taxes, insurance, utilities, and maintenance expenses? In other words, can he afford to own that home even if the house is paid for? If the answer is no, how will the father and uncle feel if the son "inherits" the house and then turns around and sells it? For that matter, how will they feel if he lives there for a few years and then sells it? Is their expectation that it will remain in the family?

This could easily turn into a messy family situation if everybody isn't totally on the same page.

[myrdale]

It's not that simple

This was my gut feeling about the whole situation.

I do think it is a great situation as James said, assuming the house is deeded over to him in full. Otherwise he's living in someone else's house. Rent free seems nice on the surface, but no security that the uncle might want to sell his half, which I doubt they could afford at the current value ($275k is what Zillow suggest).

He was asking me what property taxes were like, and I suggested they'd probably be around 1% of the house's value, and probably the same for insurance. So that's roughly $5k per year. That by itself is cheaper than renting ($850 per month I think he said).

The house is only 10 years old, so immediate maintenance shouldn't be an issue, but there is definitely cost associated with it.

And I asked the same question about selling it for something closer to their price range. He insisted he wouldn't want to sell it because he lived there for a few years as a kid. I've got mixed feelings on being sentimental about real estate.

[disneysteve]

The house is only 10 years old, so immediate maintenance shouldn't be an issue, but there is definitely cost associated with it.

Actually, that 10-15 year point is when original equipment starts going: fridge, dishwasher, washer and dryer, etc., so they need to be prepared for those costs. We've been in our house for 28 years and have replaced those things twice

[LanrollyS]

Hmm, this is a very confusing situation. Most likely, the inheritance tax will have to be paid directly by the heirs (2 sons of the grandfather, since they are the ones to whom the property was bequeathed). If two sons of grandfather sold their part of the house in time, then your friend lives for free there. Next time, I recommend contacting a law firm.