My brother-in-law convinced his parents to sign over their home and life savings to buy a $3 million compound. Do I intervene?

By Quentin Fottrell

'Both properties will be solely in his name'

"I suggested that my husband receive 40% of the parents' home-sale proceeds, but that was rejected." (Photo subjects are models.)

Dear Quentin,

My husband and I recently learned about an estate plan that I believe could leave him with little or none of his parents' inheritance, while their plan for long-term care remains murky. Could you give us your two cents?

They have two children: my husband, 47, and his older brother, 57. His parents, both 80 and in excellent health, own their home outright and have about $600,000 in a brokerage account, in addition to pensions and Social Security.

The parents originally bought their home to be close to the older brother and his family. My husband and I live on the East Coast. He is a few years from retiring from the military and plans to work as a contractor afterward. We both expect to work for at least another 10 years. He has a good relationship with his parents and visits three times a year to help care for them.

Three years ago, the older brother retired from his second career as a contractor, sold his home and moved several states away to a ski town. He bought a $1.3 million, 5,000-square-foot house with a mortgage. His wife works part-time.

Now the older brother wants their parents to move near him. He has found a property with two houses on 0.9 acres: a 5,000-square-foot house for him and his wife and a newer 3,000-square-foot house for the parents. He wants to buy two houses - one for himself and his family and one for his parents - for $3 million. Both properties will be solely in his name.

To fund the purchase, he wants the parents to sell their current home for $620,000 and cash out their $600,000 brokerage account, giving him roughly $1.1 million for the down payment. He will also sell his current home and use the proceeds toward the purchase. He estimates the mortgage will be $10,000 a month once both homes are sold, or $14,000 if they are not sold in time. He says his Roth IRA could cover the higher mortgage for two years.

The older brother wants my husband to give up his share of the parents' inheritance in exchange for a percentage of the older brother's Roth IRA, currently worth about $300,000. My husband would receive his percentage after both parents die. The older brother says the Roth should otherwise be left untouched except for his parents' medical expenses or major purchases, although my husband believes his percentage should remain intact

Uncomfortable with arrangement

I am uncomfortable with this arrangement because so much is unknown. We don't know the older brother's retirement assets, the size of his current mortgage or his financial ability to carry a $3 million compound. His Roth IRA is being asked to serve several purposes, including potentially paying the mortgage and funding his parents' needs. There are also obvious risks if he dies prematurely, becomes ill or divorces.

We have no doubt that the parents would benefit from being closer to the older brother's family as they age, and we believe he genuinely cares about them. But we question why the parents must move to a high-cost area and surrender essentially all of their assets to finance a property that the older brother insists on owning and controlling.

I suggested that my husband receive 40% of the parents' home-sale proceeds, but that was rejected. My husband thinks receiving a percentage of the Roth is more attractive because it would eventually be tax-free, and he believes his brother's promise. He also feels he has little leverage because he wants his parents to be taken care of.

My financial adviser is particularly concerned about the parents being left with virtually no assets beyond their pensions and Social Security. He advised us to ensure they retain some assets, pay rent to the older brother for their home and have a written agreement covering their long-term care.

We raised those concerns with the older brother. He said he would "mentally file" the information but believes he and his wife can care for the parents themselves and that Medicaid probably won't be necessary. We asked him to consult an estate attorney. He says he is looking for one, but he wants to move quickly because he doesn't want to lose the opportunity to buy the compound.

My husband and I don't depend on this inheritance for our retirement. We have about $2 million in assets and expect to have at least $4 million by retirement. We have retirement accounts, 529 plans and savings, although we also have a mortgage and two children who will start college in two years.

Navigating family relationships

Are we being overly cautious? Should my husband accept a percentage of his brother's Roth IRA in exchange for giving up his inheritance, or is there a better way to structure this arrangement so that his parents are protected and my husband's inheritance isn't simply transferred to his brother?.

I see that the family (parents, the sons, and the older brother's family) have gotten along well. I believe that I am on good terms with the family. The older brother and I are cordial to each other. I kept my silence during the family conference calls, except for telling his brother what my financial adviser told me.

However, I sense a slight from the older brother towards my husband, intentionally or unintentionally. The older brother has always been able to do as he pleased. He is the way he is because, from what I observed, everyone acquiesces to him.

I've been told about his various dislikes and preferences, and that we shouldn't expect him to visit us (or let his daughters travel on their own) on the East Coast. I do not dispute the fact that he has done well with his career path, having been able to retire before age 60, but plenty of people have done better than him.

I feel this is a big gamble for the parents, and I see blowback for my husband and me (besides inheriting very little in the end). I believe that since the warm and loving feelings between the parents and my husband are mutual, the estate planning should reflect that, regardless of what the older brother wants to do.

I am sure this is not the first time you have heard of a sibling who wants to, and claims to, take it all in the name of care for the parents. But given all the information, what are your two cents on this situation? Are the parents making a mistake? What do you think are the alternatives?

A Concerned In-law

You can email The Moneyist with any financial and ethical questions at qfottrell@marketwatch.com. The Moneyist regrets he cannot reply to questions individually.

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Caregiving has real economic value, but it should not come at any price.

Dear In-law,

File this under "S" for "speak up."

You are the only one standing between the parents and this plan. I would like to say that in the history of this column, I have never received a letter from a reader saying their sibling tried to liquidate their parents' savings and leave them completely dependent on them, but that would not be true, I'm sorry to say. It happens more often than we would like to admit.

From the Moneyist archives, here is Exhibit A: My sister squandered our parents' millions, asked me to give her $10,000, then made me a tempting offer. Should I take it? And Exhibit B: Our family is broken beyond repair: My brother took over my parents' finances. What can I do? Unfortunately, it happens more than we would like to admit.

This is the most important line in your letter: "My financial adviser is particularly concerned about the parents being left with virtually no assets beyond their pensions and Social Security." That's the key to everything. Forget about your inheritance and taking a share of your brother-in-law's Roth IRA and family politics. You can't transfer an IRA. But the parents should retain their independence.

I will, however, give your brother-in-law and his wife, because she's an interested party too, kudos for the scope of his ambitions: a $3 million compound, partly funded by your parents' home and brokerage account, with a $10,000-a-month mortgage, with the parents' names on the mortgage but not represented on the deed for the property. That takes some chutzpah.

Chutzpah, however, is sometimes all it takes to get this kind of baffling, brazen and potentially exploitative deal across the finish line. There is a five-year federal lookback period for certain Medicaid long-term-care transfers. Even if your brother-in-law's motives are entirely honorable, the proposed arrangement leaves the parents in a remarkably vulnerable financial position.

They should retain their independence.

There are so many moving pieces. The proposal is breathtaking in its audacity, so much so that you could be forgiven for being distracted by all the elements and missing the bigger picture. That is, your parents are being asked to give up their agency, financial independence, home, neighborhood, friends, church, and to place themselves in the care of your brother-in-law.

They are, in effect, putting themselves at his mercy in the hope that your brother-in-law will take care of them if and/or when they need help. He also suggests that a Medicaid nursing home would do the job just the same. Treating that as a casual fallback plan, when they could take a reverse mortgage if need be, seems naive at best, and callous at worst.

With all the talk of Roth IRAs and loans and promises, it's too easy to overlook turning this deal over and looking at the underbelly. Your brother has become fixated on buying this $3 million property, one he cannot afford without dipping into his own Roth IRA and his parents' real estate, and he has a plan to make it happen.

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10-06-26 1854ET