Buying Homeowners Insurance for Vacant House
REM #F829
By Ilyce R. Glink
Summary: As parents age, estate planning becomes a concern - they may move out of their primary residence into a nursing home and leave their primary residence empty. It may be difficult to buy homeowners insurance when no one lives in a home. In this Think Glink column, a reader asks about having a brother move into his widowed mother's now vacant home to facilitate buying homeowners insurance. The family plans for the brother to buy the home but he can't afford it until the house has been sold and he receives his share of the estate. Ilyce supports the idea of the brother moving into the home to help buy homeowners insurance but she questions the necessity to sell the home.
Q: My widowed mother is quite ill and is in a nursing home. My brother would like to move into her now-unoccupied home in New Jersey. It is expected that once my mother's estate is distributed, my brother will have an inheritance more than sufficient to purchase the house.
Until that distribution, however, he lives only on his Social Security check. Thus, he lacks the funds to purchase her house. My other brother and I see a benefit to having him occupy the house. We're having trouble securing homeowners' insurance on an unoccupied house. Some companies will not write a policy unless the home is owner-occupied.
We are thinking about selling him the house at its current market value, with my mother taking back a mortgage that would be satisfied at the time the estate is distributed. Presumably, my mother would be eligible for the $250,000 exclusion from profits on the proceeds from the sale of her residence, since she has lived there for 2 of the past 5 years. My brother would get a cost basis equal to his purchase price.
Would this work? Would my brother need to pay interest on this type of mortgage? My mother has no need for current income.
Thank you for your assistance and for your great column.
A: I'm sorry that your mother is not well. It sounds like you and your brothers are able to think about her and her estate clearly and are trying to provide for each other. That's very helpful all around.
It's clear from your letter that having your brother move into your mother's unoccupied house would be a good idea for everyone. But I am not sure why your brother needs to purchase the house now.
Is there a reason why he can't just move into the property and pay some sort of nominal rent to your mother so that the costs of ownership would be covered? She probably doesn't have much of a mortgage, if any at all. By moving in, he can live there cheaply, take care of the property and you can get insurance.
Estate Planning Includes Timing the Sale of a Home
When your mother dies, it sounds like your brother will have additional resources. At that time, the house will pass into the estate at its current market value. When you divide up the assets, you and your other brother may decide to "sell" the property to your third brother, or you may decide that as part of his share of the estate, he receives title to the property. As long as he can afford to pay the costs of ownership, including taxes, insurance, maintenance and upkeep, he may decide that owning the property free and clear is what he really wants.The three of you should discuss the details of your mother's estate, and what each piece of it is worth. Then, sit down with an estate planner or attorney and discuss whether his buying the house now, or receiving it as an asset, is the right choice.
NOTE: Ilyce R. Glink's latest ebooks are "The Clutter Collector: How to Get Rid of Clutter Everywhere in Your Home" and "How to Save $50 a Month," which are available at her new, all-video website, www.expertrealestatetips.net. If you have questions, you can call her radio show toll-free (800-972-8255) any Sunday, from 11a-1p EST. You can also write to Real Estate Matters Syndicate, PO Box 366, Glencoe, IL 60022 or contact her through her website, www.thinkglink.com. ©2008 by Ilyce R. Glink. Distributed by Tribune Media Services.
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