Q: My parents live with us and agreed to either pay on our remaining mortgage or pay us rent. What should they do?
This year my husband and I sold our house and bought another single-story house with the plan to move my parents in with us. My parents now live with us. They plan to sell their house that now sits empty. My parents have agreed to either give us money towards our remaining mortgage or pay us rent. We would prefer to pay down our mortgage. What are the benefits either way? If they give us a lump sum towards our mortgage, can this be considered buying into their new care situation or is this considered a gift? We do not want to cause a problem with the Medicare 5 year lookback.
A: A lump sum would definitely raise red flags as a gift and would have to be justified, documented and argued. Reasonable rent is easy to justify and document. It would be good to have a written lease and have them pay you rent, you can always apply it toward extra principal payments on your mortgage loan. Alternately, they could purchase a life estate in the home if you are set on a lump sum, in a documented real estate transaction with values based on the Medicaid life estate annuity tables.
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