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Helping My Sister — the Risk?

By Terry Savage on August 05, 2018 |

Hello Terry, Over the years I have written to you and always appreciated your replies. I have followed your advice, have chicken money, long term insurance, a Roth IRA, an IRA, and a brokerage account. Thank you Terry!

My divorced sister, 60, is moving to Florida to be near her daughter’s family. I have always been interested in being a snow bird. Recently divorced, she has $30,000 equity in her home, a 401K plan with a balance of $150,000, and savings of $100,000. She has an income of $40,000.

I am, 70 have a pension of $82,000 per year, no dependents, and a net worth of $1,600,000 with $300,000 in cash, and $600,000 in stocks, and bonds. I would like to help her out by providing $50,000 – $60,000 for a down payment on a townhouse or condo in Florida. She would be responsible for the mortgage, insurance, etc. I would visit in our cold winter months. We have always been very close with never any problems.

Is this a wise thing to do? What legal protections do I need to make to protect both of us?

Thank you for your help.

Terry Says

I understand your good intentions and your own desires — but let me take a look at it from my perspective, and perhaps give you a different approach.

There is a VAST difference in financial stability between you and your sister. I hope that is apparent to you. Not only does she have far less in assets, but she is 10 years younger than you. She should still be working and accumulating, not retiring to Florida thinking everything will be ok. Because it will not!

Now, let’s take your situation entirely separately. Given your situation it is perfectly reasonable to consider purchasing a condo in Florida. Wouldyou be willingto sell your own home and move down there permanently? Because you couldn’t get a mortgage without employment income. And I have to have you dig too far into your other assets. On the other hand, this might be the time to lighten up on your stock portfolio anyway!

So here’s my suggestion: Go down to Florida on your own, and search for a condo in the area she wants to move to. Is that where you would be happy? Can you find a nice two bedroom apartment that suits you?

If so, go ahead and buy it — paying cash. (Remember to consider condo assessments and property taxes as part of your monthly cost, along with electricity and insurance, etc.) Do you think you could manage that on your own for the next twenty years? Looks to me like you could if you don’t pay too much for the condo.

Now here’s the “kicker”! RENT a room to your sister! Ask her to pay one year’s rent in advance! No, you will never be able to kick her out when her money runs out — even if you have a lease. But this way the apartment will be in YOUR NAME ALONE.

If this really doesn’t work out, you can always sell the condo and move somewhere else. She would then have to move, even if she doesn’t want to! And if she moves into her daughters home instead of paying you rent, you know you will be ok.

(Yes, this would be ugly, but when it comes to family and money, it’s always wise to plan ahead for the worst possible outcome.)

You asked me for the Savage Truth on this situation –and I think this would be the best situation for all concerned.

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