Q: We have lived in our current house since 1989. My husband was recently disabled. I have become his full-time caregiver, which means I’m not able to work as much. So, we’re having trouble paying our mortgage lately.

My daughter suggested assuming the mortgage to our house. She has been paying the mortgage since spring, and will continue to do so. We checked with my mortgage company, and they said we can do a “simple assumption.”

What do you think about that? If we do a simple assumption, her name can be added to the deed and the mortgage. Right now only my husband’s name is on the deed. We wonder what we need to do to take his name off the deed (I have Power of Attorney for him because he can’t make any kind of decisions any more) and add myself and my daughter on the deed.

What do you think? We are not sure if this would be the right way to go. I was advised not to gift the house to her.

Thanks for your time!

A: I’m sorry that your husband has been disabled. It sounds like it is quite severe, and has had a very significant impact on your life. If it is a long-term disability, have you applied for Social Security benefits? Does he have any long-term disability insurance through work? I just want to make sure you’re getting all of the benefits to which you’re entitled.

Typically, it’s best not to give a major asset (like a house) to a child because there are tax ramifications on both sides. On your side, you may have to file a gift tax form with the IRS, and the value of the gift (in this case, the value of the house) is subtracted from your and your husband’s lifetime gift exemption total of $1 million. On your daughter’s side, she will receive the gift at your cost basis. That means, when she sells it, she’ll pay taxes based on the difference between the price at which you purchased the home and the sales price down the line. Depending on what long-term capital gains taxes are at the time, the tax could be hefty. (Right now, long-term capital gains taxes are capped at 15 percent plus state tax; they were once as high as 28 percent.)

Adding Daughter to House Deed

But you’re in a difficult situation. If I were your daughter, I’d want to make sure that my name was on the house if I were assuming the mortgage. But this may limit her ability to purchase another property down the line, since her credit will be tied up with this property. Moreover, the lender may not allow her to assume the loan without putting her name on the deed as some security.

Another option might be to have her continue to pay down the loan, and transfer a percentage of title to her in chunks over time.

One issue that occasionally comes up in these circumstances: A child who gains title to the property turns around and evicts his or her parents. For this reason, I would not have her replace your husband on the title. Instead, you (if you are not on title to the home) and she should be added to the deed, so that she owns at most one-third of the property and you and your husband retain ownership of the rest.

You should really talk with an estate planner or estate attorney who can help you sort through the special circumstances in which you find yourself and figure out how you’re going to make this work over time. There may be other options available to you that might suit your needs and might suit the needs of the family as a whole much better than just adding your daughter onto the title to the home.

Good luck to you and your husband.

Published: Oct 9, 2008