Land Trust For IRS Purposes
I want to buy my mother-in-law a house. Yes, yes I am the dutiful daughter-in-law...but I was wondering if it would be a good idea to put the house in my name and take out a trust on the house for her? That way if anything happened to us, (with some other legal arrangements) no one could take the house from her. I wanted her to FEEL like the owner, and a piece of legal paper in her hand would do that. Am I just wasting time trying to do this?
Thanks for your time,
Steena[ Edited by Steena on Date 12/29/2003 ]
You want to buy your mother-in-law's house, but you want it her name? So she will feel as if she owns something?
Well, first, you're a gem of a daughter-in-law. Secondly, I would suggest placing this property in a trust ... willing said trust to a LLC in which you and your mother-in-law are managing directors.
I think you may have the concepts a bit confused.
If you put the house in a land trust, the trust owns the house. The beneficiary owns the land trust. That is, the deed to the property is recorded in the name of the trust. You (or whomever you assign) would own a "beneficial interest" which is considered personal property (as opposed to real property). As such, you can convey that beneficial interest to anyone at anytime.
If you have a conventional mortgage (i.e., bank loan) on the property, it probably has a Due on Sale (DOS) clause (sometimes called an Acceleration Clause), which basically says that if you transfer ownership of the property to someone else (other than a land trust), the lender can call the loan due and payable immediately. As you may have noticed, the transferring of the title into a land trust is exempt from the DOS.
However, once the beneficial interest of that land trust is conveyed to someone other than those who signed for the loan, the DOS has been triggered and the lender can call the loan due--IF they find out about it, which is not common if the trust and its documentation are handled correctly.
Simply putting a property into a land trust is considered a non-event to the IRS. That is, there are no advantages or disadvantages (i.e. tax consequences) to using a land trust in terms of your federal taxes. Whoever owns the beneficial interest in the property is responsible for the taxes.
As for your question as to whether doing this is a good idea, I would talk to attorney--an attorney who understands land trusts, estate planning, and/or asset protection. Land trusts are different than living trusts, business trusts, etc. and from what I understand, many attorneys confuse a land trust for one of these other trusts.
I personally would not give away beneficial interest to something I bought unless I did not care about the possibility of losing my investment. That said, I could foresee the possibility of setting up a "successor" (for lack of a better word) beneficiary whereby the successor beneficiary would become the primary beneficiary should something happen to you. I am not an attorney so I would definitely talk to one (or several if needed) to get everything straight.
Hope this helps!
RS
[ Edited by Rogue on Date 12/30/2003 ]
Quote:I want to buy my mother-in-law a house. I was wondering if it would be a good idea to put the house in my name and take out a trust on the house for her?
That way if anything happened to us, (with some other legal arrangements) no one could take the house from her. I wanted her to FEEL like the owner, and a piece of legal paper in her hand would do that. Am I just wasting time trying to do this?Steena,
There are other ways to accomplish what you are suggesting. For example, joint tenancy with right of survivorship would convey the property to the surviving owner if the other died.
You suggest that you may encounter some legal entanglements that might compromise your ownership of the house you want your mother-in-law to occupy as her own. If this is the case, then why not just gift the house to your mother-in-law?
What would you want to happen to the house if you and your husband divorce? Would you still want your mother-in-law to have it? If this is the case, then again I ask, why not just gift the house to your mother-in-law? Put the deed in her name from the start.
She owes the IRS money. She is paying it off, but it will take a very long time. I'm not sure if she'll do it in her lifetime.
She's 57 and has a full-time minimum wage job. She was hurt on the job (a slip and fall) and she is collecting work comp right now. The doctor is not sure she can go back to work. She can barely make her bills now. Her mother also lives with her and she can barely walk. Until I start making more money at this, they'll have to keep going like they are.
I'd want her to have the house no matter what happens to me or my husband. She won't let me pay off her debt. It's hers and she should pay it (she says).
I was just trying to find a way to help her out and give her a nice house of her own for her birthday in June.
[addsig]
Given your mother-in-law's status, perhaps you and she could each benefit from some investment knowledge, and address the IRS matter head-on. Strategies of negotiation with the feds are best accomplished by those with little assets...remember Willie Nelson's escapades a few years back? At 57, this is long overdue, she should get it in gear, especially now that she's "disabled"...gifting is more appropriate by those with substantial equity conveying to "deserving" recipients. Does she really need a Trustee or a custodian? Keep the faith.
My Goodness. From good deed to mountain. The gov't will negotiate what with her? She has no money and no way of paying. It was the Amw** business that messed her up. That was 15 years ago and there was an audit... she hasn't filed her taxes since. The more I try for this deal, the more I find out that this is way too much for me at this juncture. Thanks guys for all your advice. Your guidance has been priceless, however I believe that I will simply provide her with a home she won't have to make the payments on, I will. That's the best I can do for a stubborn queen bee. I don't have the money it would take to straighten her out. It would be cheaper to buy the house myself and will it to brother-in-law or my oldest son with the understanding that she always lives there. Sound like a plan?
[addsig]
The information from Rogue is quite good, and I would like to expand on it a little. for you. The code section which prevents a lender from activating the due on sale clause is found at US CODE TITLE 12, CHAPTER 13, SEC. 1701J-3 .Note: Transfer must be to an inter vivos (living) trust. Any trust created while the Creator (settlor) is alive is an inter vivos or living trust. (See Blacks Law Dictionary) Including a land trust. 2. The borrower must be A beneficiary. Not necessarily the ONLY beneficiary. 3. The borrower as A beneficiary must occupy the property and must not assign rights of occupancy.
This would mean that you as borrower would have to occupy the home and not assign rights of occupancy to mom. Idea>>> it might be possible for mom to be a co-borrower along with you as well as A benificiary of the trust along with you. Your state law will come into play on the trust side of this and it is important you seek an attorney who does about 90 percent of his practice in trust work. DO NOT USE A GERNAL PRACTICE ATTORNEY. GET A SPECIALIST.
Steena,
Have you explored the possibility the that IRS will discount your mother-in-law's debt as settlement in full?
Perhaps, they will even accept pennies on the dollar. There are tax attorneys who have built a thriving practice in this specialty. Offer to settle your M-I-L's debt with the IRS, then let her "pay" you back if she feels compelled to do so.
Tell us more about the IRS debt, is there a lien recorded how much does she owe? Is she current and filing, ect... Tell us about the debt structure on her house if there is any. Also how is the house titled. An O.I.C. offer in compromise may be in line as well a lien discharge may work if handled correctly and indicated. Dealing with the I.R.S. can be done but it is not quick Hope this helps.