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The Social Security Government Pension Offset Is Also Entirely Reasonable

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Yesterday I wrote that various candidates’ promises to eliminate the Windfall Elimination Provision were, most charitably, misguided, but, more likely, simply pandering, because the WEP is an entirely appropriate provision to prevent certain teachers from “double-dipping” in their retirement benefits. And in response, some commenters (on twitter and my personal website) suggested that while the WEP reductions seemed fair, the GPO, or Government Pension Offset, was unreasonable.

In response, here’s a follow-up: yes, the GPO is also reasonable and prevents double-dipping. But to explain that, I have to address what seems like a wholly different topic first, so be patient!

Among the various promises that the Democratic presidential candidates such as Pete Buttigieg and Amy Klobuchar are making is this: they will institute a system of “caregiver credits.” Buttigieg’s white paper describes his proposal as follows:

“ Those caring full-time for children or for a disabled or elderly family member do not currently receive credit toward Social Security benefits—disproportionately affecting women. Under Pete’s plan, Social Security will finally recognize the undeniable: caregiving is work. Caregivers of a child, elderly, or disabled dependent will be awarded credit toward Social Security benefits as if they earned the median earnings of a full-time, year-round worker outside the home, with no limits on the number of years for which caregivers can claim the credit.”

Are caregiver credits a good idea? Maybe, if implemented judiciously, and I’m not sure the Buttigieg proposal hits the mark, without duration limits and with a structure that boosts benefits for women out of the workforce up to the median level, that is, above, by definition, half of the workforce. There are a variety of ways to provide benefit boosts to mothers: income-splitting credits credit to stay-at-home mothers half their husbands’ income; Canada reduces the number of years included in the averaging period; Switzerland and France increase benefits for parents regardless of their work choices; and, yes, Germany and Austria provide caregiver credits, with, in Germany for example, median-income credit given to caregivers of under-3s, a boost to part-time workers juggling work with caregiving, and partial credits for parents of under-10s.

And, as it turns out, the United States already has a form of caregiver credits; it’s just that it’s a simplistic and old-fashioned system that’s not perceived that way. In part, Social Security uses only 35 years of averaging to reflect some absences from the workforce over one’s adult years. But in addition, a woman who has been out of the workforce for a significant length of time is provided a special form of minimum benefit, in the form of 50% of the benefit earned by her husband. (Yes, the Social Security website uses confusing wording, with a subject header “Benefits For Your Spouse” to describe benefits individuals may be eligible for as a spouse, but so be it.) Of course, this doesn’t benefit out-of-the-workforce parents who aren’t married, or other sorts of caregivers, but at the time when Social Security was designed, this sort of minimum benefit made sense.

Again, with respect to benefits for surviving spouses of deceased Social Security participants, the wording of the website suggests that workers earn these benefits for their spouses, and even calls them a form of “life insurance.” But, again, once the surviving spouse reaches retirement age, the deceased spouse’s benefit serves as a minimum benefit to what she or he has earned in her own right.

The bottom line is that in an employer-benefits based system, workers earn benefits for themselves and their families. They earn health insurances for family coverage. They earn life insurance benefits that pay out to designated beneficiaries in case of their death. And if their employer provides pension benefits, those benefits provide the opportunity to select a “joint and survivor” form in which their spouse receives a specified portion of the benefit after their death — and the latter is true regardless of what income that spouse might have, because it’s a benefit earned by the deceased spouse.

But Social Security isn’t an employer benefit. It’s Social Insurance. And the rules are different. Regardless of how they may be described, the reality is that these are benefits accruing to the recipients themselves, even if they are “earned” by means of being married to an earner. A non-working mother truly receives her own Social Security benefit even if based on her husband’s income record; it is not the case that he receives an extra benefit because he has a dependent wife, and it is not the case that he has a government-provided life insurance policy to the benefit of his wife.

And that gets us, finally, to the Government Pension Offset.

This offset applies to workers in federal, state, or local government who have opted out of participating in our nationwide social insurance system, or whose employer has chosen to do so.

The fundamental calculation is this: the amount of benefit an individual would have been due as a spouse or surviving spouse minimum benefit, is reduced by two-thirds of the value of “opt-out” government pension. If an individual would have been eligible for a $500 minimum benefit as the spouse of a Social Security-covered worker, but had worked for a state pension system that opts out of Social Security and earned a $600 pension, then two-thirds, or $400, would be subtracted from the minimum-benefit as-a-spouse, for a net of $100. (The example comes directly from Social Security.)

The principle is entirely fair: the minimum-benefit-as-a-spouse should only ever be a minimum, not an add-on. To get both the minimum benefit and the full own-benefit is double dipping every bit as much as if this were the case by stacking two Social Security benefits together.

Now, at the same time, in a perfect world, the math would be different.

After all, a state or local pension benefit is a Social Security-replacement benefit and an employer supplemental benefit all wrapped into one. A more precisely-fair calculation would split the state or local pension into two numbers: the portion that replaces Social Security, and the portion that supplements it in the same way as private-sector pensions do. Then only the first of these would be compared to the benefit-as-a-spouse to identify whether Social Security should pay out a minimum benefit.

Now, whether Social Security has the data available to do the math, I can’t say. And even if so, one could make the case that an individual who has participated in an alternative pension system for their career has made a choice to opt out of Social Security in a way that’s not true of a non-earner or low-earner. And for middle/upper income full-career workers and for their employers, opting out is a win, financially, because they opt out of subsidizing the poor with a bend-point formula in favor of earning benefits at a flat rate.

And, again, the solution to this unhappiness is simple (and I cannot stress this enough): those 15 states whose employees do not participate in Social Security should be moved into the system like the rest of us. Why those states — which include notoriously-poorly funded California and Illinois — don’t do so is plain: it would increase their costs and force them to pay up-front in the form of FICA contributions.

(And, incidentally, the federal government itself made the switch back in 1984, at which point newly-hired workers as well as those who chose to make the switch, began to be covered by Social Security.)

As always, comments are welcome at JaneTheActuary.com!

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No President Trump, Obama’s Economic Recovery Was Not A Con Job

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After President Obama tweeted about signing the Recovery Act on its 11-year anniversary on Monday, President Trump tweeted that Obama was trying to take credit for the economy under the Trump Administration. Trump continued with his usual falsehoods that the jobs numbers are the best ever and that there is an “Economic Boom” taking place under his Administration.

When one looks at the actual numbers for GDP growth and new jobs for the past three years, the con is Trump gaslighting how strong the economy is. His tax cut looks like it was a sugar rush for one year, which has also helped to create the largest federal deficits in history when the economy is growing.

Slow and steady wins the race

Economies tend to stay on the same glide path until there is a shock to the system. There are always fluctuations up or down to some degree, but major changes are usually created by some event or number of events in a short timeframe to disrupt what consumers and businesses are doing. Since people tend to project forward what is currently or recently happened to them, they only take incremental steps after a large or meaningful event has occurred when changing their habits and outlook.

The Great Recession is a very good example of this. The collapse of the housing market rippled through the whole economy and took a huge toll on tens of millions of people, not just in the U.S. but also worldwide. Recovering from this was not going to be quick due to the financial hardships people endured and rebuilding their psyche to be positive about the economy.

Part of Trump’s tweet was that the recovery under Obama was the weakest since the Great Depression. While in many ways that is true, a very large part of that was due to the people and businesses having to get through the economic pain they had endured from both a financial and psychological perspective.

One question you have to ask, is it better to have a recovery that lasts a decade or longer or one that comes back faster but is subject to falling back into a recession. Unfortunately, there isn’t a straightforward answer since the people that have been very negatively hurt by a recession would probably want a faster rebound, even if it could hurt them in the long run.

There isn’t an Economic Boom when GDP growth is under 3%

While GDP growth crossed over 3% in a few quarters the past three years, on a full year basis GDP growth hit a high point of 2.9% in 2018, the year that Trump’s tax cut took effect. With it falling back to 2.3% in 2019 it appears that the tax cut was essentially a sugar rush for one year. This is a shortfall to Trump’s claim that the economy could grow 4%, 5% or maybe even 6% when he was President.

The best three quarters of growth for Trump have been:

  • 3Q 2017 at 3.2%
  • 4Q 2017 at 3.5%
  • 2Q 2018 at 3.5%

Obama’s best three quarters of growth were:

  • 4Q 2011 at 4.7%
  • 2Q 2014 at 5.5%
  • 3Q 2014 at 5.0%

Note that Obama’s best two quarters of growth, which were 5.0% or greater, were five years after the end of the Great Recession, so far enough past that their strength was not due rebounds from the downturn. And they were at levels that Trump has touted he could get the economy to, but has not achieved.

Each of the last three years of Obama’s economy were stronger than Trump’s 2019 result when adjusted for trade, inventory impacts and government spending as were five of his last six years. To get an overall view of Trump’s economy this article has 10 economic metrics of his three years in office.

Obama’s last three years of job growth all beat Trump’s best year

It is harder for companies to find workers and it is later in the business cycle. However, Trump’s boasts about how many jobs he has added don’t include that he has generated 6.5 million jobs under his Presidency vs. the 8.1 million, or 1.6 million less, than Obama did under the same timeframe.

The job growth yearly totals for Obama’s last six years in office and Trump’s first three years are:

  • 2011: 2.074 million
  • 2012: 2.176 million
  • 2013: 2.301 million
  • 2014: 3.004 million
  • 2015: 2.72 million
  • 2016: 2.345 million
  • 2017: 2.109 million
  • 2018: 2.314 million (Trump’s best year)
  • 2019: 2.096 million

Also Trump’s 2.314 million in 2018 barely beat Obama’s 2.301 million in 2014. On average Obama created 43,000 more jobs per month than Trump over the three-year timeframes.

Note that the recent negative revisions to 2018’s job growth numbers could lead to a lower reading on Trump’s 2.9% GDP growth that year. The revised numbers should be out in July this year when the first estimate for June’s GDP growth is released.

Federal budget deficit ballooning above $1 trillion

The Federal budget deficit has increased over 68% in Trump’s three years in office and is expected to exceed $1 trillion in 2020 and beyond. At $1 trillion it will be the largest budget deficit in history, except when there is a recession. This is in direct contrast to his statements that it would be easy to eliminate not just the deficit but also the Federal debt.

President Obama entered office in early 2009 in the teeth of the Great Recession. Not surprisingly, the deficit exploded from $459 billion in calendar 2008 to over $1.4 trillion in calendar 2009. As the economy recovered the deficits shrank to a low of $442 billion in 2015 and was $585 billion his last year in office.

President Trump on the other hand was handed an economy that was growing. In 2017, his first year in office the deficit grew to $666 billion, was $984 billion last year and is projected to top over $1 trillion in 2020 at $1.02 trillion. This would be a 74% increase in just four years and going forward the Federal deficit could escalate to $1.7 trillion in 2030. If, and more likely when, there is another recession the deficit could easily top $2 trillion.

And when you compare the last three years of Obama’s Presidency vs. Trump’s first three years, Trump’s deficits will be almost $1 trillion greater at $2.47 trillion versus $1.51 trillion for Obama. It doesn’t look like Trump’s tax cuts will pay for themselves.

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Digital Asset Steps Up A Gear In Enterprise Blockchain

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Digital Asset, the six year old enterprise blockchain provider behind the DAML smart contracts language, is one of the oldest and most established companies in the enterprise blockchain space. 

With its charismatic Wall Street veteran — Blythe Masters — at the helm, the company became famous for its rapid market dominance of the blockchain-in-financial-services space as it signed a dizzying array high profile deals with financial services clients, and pulled in large amounts of investment. 

However this infamy also became problematic when market sentiment turned and the company, for a while, became a victim of its own success. As a number of its high profile deals faltered, critics were quick to seize on this as evidence that the company had gone out over its ski’s. The criticism continued as the company shifted its business model, and its CEO left the company.

However, the company has shown remarkable resilience, emerging from a tumultuous two years with a major client success story and a fresh round of investment from a number of major technology and financial services firms.

To understand how the company is thinking about the next chapter in its life, Forbes.com recently spent time with Digital Asset CEO Yuval Rooz and Chief Marketing Officer Dan O’Prey.

Digital AssetThe Early Formulation

The company, founded in 2014 by Sunil Hirani and Don Wilson out of a bitcoin trading operation created by the Chicago trading firm DRW, rose quickly to prominence through aggressive acquisitions in talent and technology. 

In 2015,  former CEO at JP Morgan’s commodities division and Wall Street titian Blythe Masters joined to lead the company.

The company gained an early reputation for being highly acquisitive: Blockstack.io, Bits Of Proof, and Hyperledger were purchased in quick succession.  The acquisition of Hyperledger proved prescient, because while few knew about that small start-up, it provided the Digital Asset team with a solution to an architectural limitation of blockchain technology that existed at the time: early blockchains relied on the concept of a coin1, however, Digital Asset found that as unworkable when modeling more complex aspects of financial instruments. Whereas Hyperledger provided a coin-less way of representing financial instruments.

The company gained early client traction in September 2015 when Pivit, an online gaming portal, completed a $5 million round of funding with a portion of the debt issued through Digital Asset’s software.

In 2015-2016, the company announced a number of new clients including; Master’s previous employer, JP Morgan, the Australian Stock Exchange (ASX) and the Depository Trust And Clearing Company (DTCC). 

In a surprise announcement the company donated the Hyperledger trademark to the Linux Foundation, an association of enterprise blockchain companies.

Following a $50m+ raise from a range of Wall Street firms in 2016, Digital Asset’s final feather in its cap was the 2017 acquisition of Elevence, which had developed a unique financial services modeling smart contracts programing language. This set the company on a path that would result in the company launching its own smart contract language — Digital Asset Modelling Language (DAML).

The Tide Turns

Through 2017, like a few of its competitors such as R3, Digital Asset both benefited from the market hype around blockchain technology and also, itself, played a part in fanning those flames through highly publicized deals and blanket media coverage.

However, by 2018, as the blockchain fervor started to subside, investors and the media started to question whether blockchain technology companies could quickly transform the archaic and conservative world of financial services and deliver on promised returns. As one of the market leaders, Digital Asset came under the microscope.

Critics began to point to shifts in the company’s business strategy and the slow progress of deals as evidence of Digital Asset’s shaky foundation. A number of clients were reticent to move beyond the successful pilot phase into a production setting; the Depository Trust Clearing Corporation hit pause because, as  Murray Pozmanter, head of clearing agency services, explained,“basically, it became a solution in search of a problem.” (Digital Asset is quick to point out that the trial did meet all success criteria and provided a launch-point for some follow-on areas of exploration).

Post-trade services provider, SIX Securities Services, a unit of the group that operates Switzerland’s stock exchange, also passed on progressing to production. 

The company also attracted notoriety for a churn of high profile staff: Masters and a number of  senior staff members left, including Digital Assets’s European head, followed by the CIO and CTO of engineering and a board member.

In the following year, stories circulated calling into question the health of the ASX project, which was one of their flagship deals. This was accompanied by an announcement that infrastructure virtualization provider VMWare had stepped in to the project as a new partner.  With VMWare appearing to have taken over the consensus layer of Digital Asset’s stack in the deal and Digital Asset switching the attention to DAML, critics seized on this as evidence that Digital Asset was having challenges with their technology, requiring a third party to step in.

For Digital AssetThe Smart Contract Layer Is Where The Value Is

While Rooz and O’Prey wouldn’t be drawn in to talking about Master’s reasons for leaving the company, they were more forthcoming around the question of the company’s “pivot,” portraying it as natural evolution of their product: as the blockchain industry has matured, blockchain vendors have started to focus and specialize on certain areas of the stack where they can differentiate.

“We might have pivoted our business model, but we didn’t pivot on the tech,” says Rooz. For Digital Asset, competing against other vendors in the industry across the full technology stack isn’t where the value is.

Rooz goes on to draw parallels in the smartphone industry: Apple controls their stack vertically from the application ecosystem through to the phone hardware and competes with other companies across that full stack. Whereas companies such as Google, with their Android offering, have decided to take one part of the stack and compete on that, and leave the other elements, such as phone hardware to other companies.

Digital Asset, has decided to specialize on its smart contracts language – DAML and leave the underlying technical plumbing, a layer that has become largely commoditized to the large scale infrastructure companies to provide.

In the same way that Android is available across a range of devices, Digital Asset has been able to make DAML available across a range of consensus models, giving adopters a myriad of choices for what underlying infrastructure they want to use including Hyperledger Fabric, Sawtooth, R3 Corda and Amazon QLDB.

“Early in 2019, against the backdrop of all these leading tech companies coming into the market, I asked myself and my team if there was a bigger vision to what we’re doing here at Digital Asset? If your product is to build the entire stack, then your strategy is to compete with everything and everyone.” 

Yuval Rooz — CEO — Digital Asset

So why did Digital Asset build a consensus layer in the first place? The answer, according to Rooz was out of necessity — there was simply nothing else available to use at the time. The team hasn’t abandoned the technology entirely, however. “We still have a team working here on blockchain tech, i.e., a ledger,” says Rooz, adding that this team is solving complex problems that others don’t: “We think we can help our partners enrich their own blockchain offerings.”

Rooz claims that the company’s focus on DAML has paid off, pointing to a range of market leading features that the language has, which had they not had such focus they wouldn’t have been able to bring to market so quickly.

“Today, building and deploying distributed applications is far from intuitive. In fact, you probably need a Phd to get a scalable distributed application running. We’re working to change this.”

Yuval Rooz – CEO – Digital Asset

However, that still leaves the question as to how the company will be able to make money out of an offering that is open source and therefore free to use. Rooz sees a number of paths to  revenue generation.

While DAML is free to use, the company plans to charge a support fee for enterprise support. That will allow adopters to ensure that they are eligible for upgrades, special enterprise features, and s expert assistance around how to use the language effectively.

The company will also offer – and charge for – “customer enablement services” to provide the expertise and support to help clients with deployment into production; as adopters are starting to find out for themselves, it’s one thing to experiment with the technology in the lab, quite another undertaking to move it to production. Digital Asset will be well placed to assist clients as today’s experiments start to translate into complex initiatives to move to production.

Setbacks Are A Part Of Pioneering

The conversation with the Digital Asset team turns to the slow adoption rate in financial services of blockchain technology and the numerous setbacks that have beset both the company as well as other blockchain providers over the last few years.

For Rooz, it’s a matter of expectations and perspective.

“When people asked about the arrival of the Internet… did they say ‘is it ready yet’?” quips Rooz. His point: If the Internet had been as eagerly hyped prior to wide-spread adoption as blockchain,  then possibly the media would have been criticizing Internet pioneers about their slow progress as they do with enterprise blockchain vendors today.

To give the company its fair dues, Digital Asset has not been alone in its setbacks with customers being gun-shy in moving to production, and the industry success rate overall has been low. In that context, therefore, it could be argued that the company’s one major early success — ASX, out of a handful of initiatives —  could be considered a relatively high batting average in the industry as a whole.

Australian Stock Exchange

The Digital Asset team are quick to “correct” the media narrative that the ASX implementation was delayed, arguing that from the outset of the initiative there was an agreed window of time (albeit quite a wide one) and that after a consultation process conducted by ASX, it came to the conclusion to settle on the later end of that window with a go-live date of April 2021.

Rooz claims that the project remains healthy and that they have yet to miss a deadline. The ASX remains dedicated to the effort, which is evidenced by the sizable dedicated team that the exchange has in place to implement the technology as well as through the exchange’s continued investment in Digital Asset that now totals $40m.

“When you think about all the components that go into building a system like CHESS, it’s incredible what we have been able to achieve with the ASX in such a short period of time.”

Yuval Rooz — CEO — Digital Asset

To many, it did seem strange that both the ASX and Digital Asset appeared to be publicly championing a project that’s not really a great poster child for distributed ledger technology. After all, the exchange is already one of the most digitized, consolidated and centralized in the world, and with such a decrepit infrastructure in place, implementing any modern technology as a replacement would have sufficed.

The Digital Asset team has some sympathy for this argument, but for Rooz and O’Prey the real opportunity is the long term opportunity; the CHESS replacement provides a toe-hold that ultimately will expand into a myriad of adjacent areas that include “back office as a service”, the creation and lifecycle management of new forms of digital assets, as well as potentially taking on the colossal superannuation business.

Financial Services Is A Focus But Not The Only One 

Digital Asset claims that DAML has widespread applicability to any business process, not just modeling financial instruments.  The company points to its marketplace that showcases a number of solutions across a range of industries including healthcare, aviation, and retail.

Yet despite the company’s ambitions to deploy DAML across industries, Digital Asset’s brand remains closely associated with financial services; the company is a regular fixture at Barclay’s derivatives hackathon, where the majority of teams choose to use DAML over other smart contract languages. Digital Asset also sends their own team to the hackathon and claims to have created a simple swaps contract in just 100 lines of DAML compared to  the 800 lines of Kotlin. For the company, that’s a major proofpoint of the language for Fintech.

For the company to meet its ambition of achieving ubiquity, broadening DAML’s appeal beyond financial services will be critical, especially given how notoriously conservative and slow to change financial services has been. It’s possible that the company may be able to make more headway in these other verticals, many of which are more lightly regulated and less archaic.

Feature, Not A Bug

While that may be the case, those that are close to the language have complained that it is hard to use, mirroring aspects of how financial instruments work rather than how programmers intuitively think. That creates a learning curve and commands a very different programing mindset than is employed by developers of traditional non-domain-specific languages, such as Java, making adoption more challenging.

For Rooz, it’s a feature rather than a bug — programming complex distributed applications through smart contracts is different from standard programing, and therefore the experience shouldn’t feel familiar. Rooz contends that “with DAML, you’re trying to solve really complex problems. It is naive to think you can solve complex problems with simple, general purpose, tools.”

The Digital Asset team points to another key feature of DAML, which is how the language has been designed with the principle of composability at its core. The power of composability is that it enables a programmer to pick off one small part (or service) of a much larger and complex problem rather than fully solving for the whole piece. This means that an engineer can decide to solve just for the payments aspect of a complex supply chain rather than seeking to fully move the whole solution to blockchain. In turn, companies can slowly integrate blockchain technology into their processes, thus reducing the risks and costs inherent in the all-or-nothing approach to adoption.

Ready For The Next Phase Of The Journey

Regardless of how the company got to where it is today, what is arguably more important is where it is headed.

With a new injection of cash of $35m from it’s recent Series C financing round, the company plans to “accelerate adoption of DAML across multiple industries, expand the number and variety of DAML-enabled partner products, and fund new products designed to enhance the DAML developer experience”.

Its newest strategic investors, Salesforce and Samsung, are likely to be strong allies in enabling DAML to become ubiquitous and we may see in the coming year DAML becoming integrated into Salesforce CRM or in range of Samsung products across a consumer, medical, heavy industries, and automotive segments.

A C round is typically used to scale a company that has achieved some traction in the market. However scaling is not without risk, and companies going through this type of expansion can sometimes take their eye off the ball with so many things simultaneously vying for management attention. The company will need to balance the complexities of expansion with staying on target for getting ASX live by April 2021.

The company will also need to start demonstrating to investors as it scales its business model that it is able to deliver healthy and repeatable revenue, especially given that some of those investors have been waiting for over six years now.

The coming year will certainly be an interesting one for Digital Asset.

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Financing An Accessory Dwelling Unit: A Matter Of Trust

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“My wife and I are seniors, our house is worth about $1 million with a loan balance of $460,000. The payment on the loan is quite burdensome, and we have been offered the following deal by my daughter’s fiancée. He would pay off our loan after which we would transfer ownership to him. He would then build an accessory dwelling unit (ADU) on the lot that we could live in rent-free. What do you think?”

My first thought was that if you preferred to stay in your current house, your better option would be a reverse mortgage which would eliminate the required payment on your existing mortgage. While the loan balance on a reverse mortgage would be slightly higher,  the reverse mortgage would have no required monthly payment.

Unfortunately, I found that at your ages, your loan balance is a little too high to qualify. My estimate is that you would probably qualify in 2 years because your loan balance will be a little lower at that time, and you will be 2 years older. But you may not want to wait, so let me turn to the option you have been offered.

It would be useful to look at it from the perspective of your daughter’s fiancée. He acquires a house worth $1 million for $460,000. That puts him $540,000 ahead. In exchange, he has an obligation to build an ADU for you that you will occupy rent-free. Since he receives no revenue from it for an indefinite period, he has a financial incentive to minimize the cost and extend the process. If he behaves like an “economic man”, the ADU could take a long time to build, and may not meet your needs when it does.

This might not happen, of course, he might be a great guy, family-oriented and generous. The key point is that you have to trust him, and the fact that he is not yet in your family is not helpful.  

But there is another way to do it that does not require you to trust someone who is not yet part of the family. This would involve having the ADU built first, with the transfer of ownership of your existing house not occurring until after the ADU has been completed to your satisfaction. This flips the power to abuse from him to you. He has to trust you not to make unreasonable demands that raise the cost of building the ADU and delay the transfer of ownership.

Doing it this way has the disadvantage for you that you don’t get out from under the burdensome mortgage payment until the deal is done and the mortgage is paid off. But this gives you an incentive to get the deal done quickly. Doing it his way provides an incentive for him to drag out the process because he gets your home equity upfront. Bottom line, he has a much better reason to trust you than you have to trust him.

Do it your way.

The writer is Professor of Finance Emeritus at the Wharton School of the University of Pennsylvania. 

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