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Lane
Lane, JD, CFP, MBA, CRPS
Category: Finance
Satisfied Customers: 11140
Experience:  Law Degree, specialization in Tax Law and Corporate Law, CFP and MBA, Providing Financial & Tax advice since 1986
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We are building a 2nd floor on our house for my mother to

Customer Question

We are building a 2nd floor on our house for my mother to live in. She is paying for the addition on our home. All parties agree that there should be a contract drawn which stipulates that in the event that the house were to be sold or I passed away, my mother would get her initial investment returned to her so that she could get a new residence. Who/where should I make contact to create such a contract? What other issues should be considered so that all parties' interests are protected? If this is a simple contract, I would like to be able to write it up myself, I just need the correct language and standard guidelines. What is the name of this kind of contract?
Submitted: 7 months ago.
Category: Finance
Expert:  Lane replied 7 months ago.

Hi. My name's Lane. I can help you here.

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There are several readons that you likely don't want, actually to put her on the deed (although technically, if she adds to the house, that would be the primary way to do it)

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For example ... in one case, in an excellent paper by Ashlea Ebeling, Mom was put on as a “joint tenant with right of survivorship” to the deed on her daughter’s house.

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Then, when the daughter died of breast cancer, her mother, rather than her kids, inherited the house. Later, it had to be sold to pay the mother’s nursing home costs.

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AND, if the daughter and her mother had owned the house as “tenants in common,” the daughter’s share would likely have passed to her children, putting only Grandma’s share at risk for nursing home bills. (If the house had been left solely in the daughter’s name, Medicaid couldn’t have touched it).

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So, you've either researched this or your intention is good ... there is really no "type of contract" here. What matters about a contract is that you have all of the reqauired legal elements: Offer, acceptance, mutual agreement, consideration, competent parties, specific terms, and here, becasue there's real-estate involved the contract must be in writing (this is becaus of a common law rule called the "statute of frauds."

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What matters is that the contract gets done what you want it to get done. Offer and acceptance are obvious, consideration means that something is given in exchange by both parties. Here, the consideration is her putting up the money on her side and your guarantee of a return of money on your two conditions ( death or sale of the home) on the other.

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It Can be as simple as this:

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{Name} , known as "First Party," agrees to enter into this contract with {Name}, known as "Second Party" on {date}.

This agreement is based on the following provisions:

1. {provision}

2. {provision}

3. {provision}

Furthermore, the First Party agrees:

{other items applicable to the First Party}

and the Second Party agrees:

{other items applicable to the Second Party} .

Invalidity or unenforceability of one or more provisions of this agreement shall not affect any other provision of this agreement.

This agreement is subject to the laws and regulations of the state of {State}.

Signed:

___________________________ __________________________
{First Party Name} {First Party Signature}

___________________________ __________________________
{Second Party Name} {Second Party Signature}

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Abother way to do this is to give you mother a life tenancy:

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She can buy a life estate giving her the right to live in her child’s home for the rest of her life. The price is based on Mom’s age and the value of the that portion of the home.

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Another approach is to let your mother loan you the money; you can pay her interest and principal on the loan and deduct the interest on your tax return. If she doesn't need the income now, she can give her daughter and son-in-law enough cash each year to make those payments, using the $14,000 annual gift tax exclusion. If the house is used as collateral, then she'll be first in line either at death OR sale to get her money back (call the loan).

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But quite honestly, the contract idea is a good one. That way she doesn't own the asset, and have some of the issues that go with it, but she's still protected.

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Sitting down with an attorney licensed in your state is a good way to make sure the contract is valid under your state's contract law ... but wuith good coimmunication and if the trust is high all round, and there's no question that the money will be repaid, doing it yourself IS an option.

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Please let me know if you have any questions at all.

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If this HAS helped, and you DON’T have other questions … I'd appreciate a positive rating (using the stars or faces on your screen, and then clicking “submit")

Otherwise I’m working for no crediting at all here

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Thank you!

Lane

I hold a law degree, (Juris Doctorate), with concentration in Tax Law, Estate law & Corporate law, an MBA, with specialization in financial accounting & tax, a BBA, and CFP & CRPS designations, as well - I’ve been providing financial, Social Security/Medicare, estate, corporate, non-profit, and tax advice, since 1986.

Expert:  Lane replied 7 months ago.

Hi,

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I’m just checking back in to see how things are going.

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Did my answer help?

If this HAS helped, and you DON’T have other questions … I'd appreciate a positive rating (using the stars or faces on your screen, and then clicking “submit")

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But again, let me know if you need more here.

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Lane