Hi,My inlaws cant afford their mortgage anymore and my husband (their son) wants to help them save the house. The inlaws don't live in the h...

Question

Hi,

My inlaws cant afford their mortgage anymore and my husband (their son) wants to help them save the house. The inlaws don't live in the home anymore and wants us to move in and take over the mortgage. We are willing to help pay the left over mortgage of 190k. They said that basically the home is ours now. They don't want to forclose the home since its been in the family for about 20 years.

Only thing is, I dont know what to do. We can't take out a loan or transfer the remaining loan into our name cause we both don't have good credit. What can we do? Just live in the home and pay off the loan under my inlaws name until the loan is paid off, then transfer title to their son's name? Please help.

Answer

You have a fairly simple situation that is made very complex by the intersection of estate, capital gains, and property tax laws. If you do not anticipate being able to take over the mortgage before your inlaws die, most likely the best course of action is to put the property into an intervivos trust, and have the trust rent it to you for the cost of the principal, interest, taxes and insurance. I would then pass to your husband automatically once his parents pass away, and you would save possibly hundreds of thousands of dollars in capital gains tax, while bypassing probate. If you think it can be paid off before they would be expected to pass away, then it gets more complicated, but just transferring it to your husband at any time during their lives is likely to be a real tax mistake any way you look at it, unless you buy it from them for full market value. Your inlaws really need to spend a little time and money with an estate planning attorney to sort through the best course of action to accomplish the results they and your husband are reaching for.

Answer

I agree with Mr. McCormick. Where he says "I would pass...." he means "It would pass....", referring to the house. An inter vivos trust (living trust) is a very good choice for passing appreciated real property from one generation of a family to the next. The capital-gains tax avoided almost always greatly exceeds the cost to set up the trust, and unlike a will, does not require a probate proceeding.