Expert: Dick Dennis - 10/20/2006

Question
Thank you I was wondering if this legal.  Since my father said a loan officer told him about this. My father wants to start a business so it would be nice if I can help him by refinance cashout and give him the money so he doesn't have to borrow. I would like to keep the property for my kids.  My father is limited with his ideas and he thinks his way is the better way.  Is it legal to refinance and give the cash to my Dad?  I don't want to do anything illegal plus my Dad will never agree to do something like that.
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The text above is a follow-up to ...

-----Question-----
Hi, My father owns a property that he wants to give me. I told him I don't want him to just give me the property.  And would like to buy it from him. Can he do a quick deed of trust and than I refinance?  He has 50% in equity. Is it possible for me to refinance and give him all the equity on cash?  I can't buy his property the conventional way since my income ratio doesn't allow me to do it.  I own a home and my wife is not working at the moment. I have twins she needs to take care of.
-----Answer-----
Here is a better way, Jose. Go to an living trust attorney (not all attorneys know about trusts) and have him create a revocable living trust. Why? Because this way your father puts the house into that trust and he is the trustee, you are the successor trustee. He treats the property as he did before. If some time in the future, you father dies, then you become the trustee and control the property and you (and this is the main reason why I am making this suggestion) your tax base is not the same as your father's. It is at a higher tax base, thus allowing you to pay less tax should you ever sell the property. If you take the property now, you will inherit his tax base and you will be obligated to pay a higher amount of capital gains tax when you ever sell it. So, what you are doing is to delay buying the house forever. The living trust (the attorney will explain) takes title to the property and if you father passes, then you get title at a higher tax base (to repeat).

You can pay the attorney's fees and you're much better off.

I do wish you well, Jose.

Dick Dennis          dixiedee13@aol.com

Answer
First of all, Jose, it is obvious that the mortgage agent simply wants to earn a commission from making a loan and he doesn't care from where it comes.

What kind of business does your father want to start? Does he have expertise in that business? Or are you looking to waste that money when he goes bankrupt in that business? I would recommend you get your father something else to do. He certainly must have some experience in something. In his old age (I am 75!) there are lots of things he can do, not the least of which is go to school or learn a hobby. With my 37 years in real estate I spend my time helping people and writing newsletters. Get your father something with which to consume his time, not spend the equity in that house. You will wind up NOT having a house given to you later on.

I wish you well.

Dick Dennis