How to structure an equity position?

[Megan Lawson]

Hi folks! Looking for some advice. I am purchasing a property and only have half the money required for the downpayment. My parents are going to contribute the other half. My husband and I qualify for the loan ourselves, so they will not be on the mortgage and we are showing their contribution as a "gift" to the lender. 

My parents don't want to structure it as a loan because they do not want any more income or to be put in a higher tax bracket. Therefore, we've agreed to split the appreciation growth of the property (with full disclosure that this is speculative, but we believe we are in an appreciating market). We don't want to split the equity growth because we'll be the ones servicing the debt and paying down the mortgage, thereby creating more equity as time goes on. 

A few questions:

1. If we are the ones paying 100% for improvements to the property that creates appreciation (i.e. redo the kitchen or bathrooms), how do we account for this?

2. How should we structure this legally? Do we record this in some way on the title, or create some sort of side agreement? 

3. What are some options for their ability to request repayment of their contribution plus their portion of the appreciation? Ideally, this will be a long term buy and hold property (and the money contributed by my parents would eventually become part of our inheritance anyways), but they want assurance that in the case of some medical emergency or time of need in the future they could get the money back? 

4. We have negotiated a purchase price that is $100K less than the appraisal came back at, so we have $100K of equity in the property, plus our 20% downpayment from the start. Do my parents automatically have 50% of the total equity at the start, or only future appreciation above the appraised value?   

Any advice or thoughts would be greatly appreciated! TIA.