Legal Question in Real Estate Law in Michigan

Re: Sale of rental home to family

There is no really sound theory, either legal, ethical or moral, that would oblige your parents to credit your brother for rent paid, particularly if he has been a healthy adult (over 18) all those years and thus no obligation of support existed.

Sometimes landlords give tenants lease-option contracts in which part of the rent can be credited to the purchase price if the tenant exercises the option. In such cases, the credit is never 100% and the rent is usually higher to compensate for the possible credit. Also, it isn't unusual at all for parents to give their children substantial gifts of money or property, usually part of a long-term estate-planning process. These parents are almost always those who are well fixed and in a position to give away assets, and they do it, hopefully, based on professional tax and planning advice.

In this situation, I would suggest selling at, or maybe a bit below, the current appraised value. Treat any discount from appraisal as a tax-exempt gift. Each of your parents is entitled to give $11,000 a year to each child without adverse tax consequences. Be sure junior understands he is getting a generous gift from parents who can ill afford it. (To be fair, the parents should make an equivalent gift to all their children, which is a further burden).

This is only a suggestion; there would also be nothing legally wrong with just putting the house on the market to sell for the best price. The children should remember that in California children have an obligation of support for indigent parents, and no one is "entitled" to an inheritance.

I would also suggest that your parents consult with an estate-planning attorney about various tax, income-production and estate-planning options including living trusts, reverse mortgages and the like.