What happens when the co-owner of your home dies with debt? This reader is concerned that they’ll get stuck with the bill or worse yet, that they’ll lose the home.

Q: My mother and I currently share ownership of my home. We own the home equally. I’ve been reading some of your posts on ThinkGlink.com and it seems to me that we own the home as joint tenants with rights of survivorship.

My mother is 80 and is spending like a teenager on her credit cards. I’m sure she’s thinking that she’s going to die soon and the card balance will go away. I’ve told her that because I’m a half owner of the home, the credit card company is going to come after her estate to pay the balance.

And, since I know she doesn’t have any savings, the next asset is her house. I assume the court would make me either pay the credit card balances or sell the house to pay the balance. So I’m thinking I should just put the house in my name so I don’t end up homeless.

I’ve been reading about that and there doesn’t seem to be an easy way to avoid the taxes that would be owed. If I buy her share for $1, she’ll have to pay a huge gift tax. But is the gift tax based on her share amount? Let’s say the home is worth $100,000 and she’s allowed to gift $15,000 to me every year, so would the tax be on $35,000? Assuming the tax is 10 percent, the tax would be around $3,500 and that’s money she doesn’t have.

Is the answer to create a will and then into a trust? Or should I change the ownership to tenants in common and put ownership of 99 percent of the home in my name and 1 percent in her name?

What Really Happens When the Co-Owner of Your Home Dies with Debt?

A: We think this is one of those situations doctors complain about when their patients read information on the internet, self-diagnose and get it all wrong. We can tell that you’ve researched a number of issues but, we’re sorry (or happy, as it may turn out) to say, you got most of it wrong.

So, let’s start at the top. If your mom were to die in 2019, and the value of her estate was less than $11,400,000, she would have no federal estate taxes to pay. At all.

And, when it comes to the annual gift tax exclusion, your mom can give away up to $15,000 per person, per year, and not have to file a gift tax form with the IRS. If she gifts someone more than that, she might have to file a form with the IRS. So, if your mom owns her half of the home and wanted to gift her half to you, she wouldn’t pay tax on the gift but might have to file a federal gift tax form. Given the high value of the estate tax, most people will never pay estate taxes or gift taxes.

How Co-Owners Hold the Home Title Plays a Big Role

On a second issue, you should know that when you own a home as joint tenants with rights of survivorship, upon the death of one of the co-owners, that owner’s share immediately and automatically goes to the surviving owner. You wouldn’t need to try to put the home into a trust, or change the ownership interest from joint tenancy with rights of survivorship to tenants in common. Simply said, with joint tenancy, your mom’s interest in the home will transfer to you automatically upon her death.

When you hold a home as tenants in common, each owner owns his or her share of the home and upon the death of one of the owners, that interest goes to whomever was designated to inherit the home by your mom’s will or as designated under state law if she has no will. It can be a disaster when homeowners hold title as tenants in common. When one owner dies, that owner’s share might go to various children or relatives. Now, when you want to sell, refinance or deal with your co-owners, you might have to deal with many relatives with differing opinions on how to deal with the home.

You are correct that your mom’s estate will be responsible for her credit card debt. We don’t sanction her desire to load up her credit card debt with the hopes of seeing that debt wiped out when she dies. Although if she has no other assets at the time of her death, the home shouldn’t be considered her asset after she’s died as you will be the sole owner of the home.

Can Debt Collectors Take the Home You Co-Own?

The good news is that generally speaking, your mom’s debts shouldn’t become your responsibility after her death. We can, however, imagine where a credit card company might claim that your mom bought things for you, for the home, or paid other expenses that benefited you. If the credit card company successfully claims that you were the beneficiary of those charges, you might have the obligation to repay those charges. You’d have to talk to an attorney further about this issue to understand what your exposure might be.

Let’s say your mom lived in a rental home far away from you, and racked up big credit card charges on items that she alone used. In that scenario, there’s no reason why a credit card company would chase you.

While you’re having a tough time watching your mom spiral into debt, none of us can control how our parents spend their money. But to relieve your own financial stress, talk to an attorney about how your home is titled, what your mom is doing with her spending, and whether you’re at risk for picking up the pieces after she’s gone.

Related Articles

How to Have a Financial Discussion With Aging Parents

Parents, Children, Estates and House Title. How Does Property Title Pass After Death?

What Happens to Your Taxes When You Co-Sign a Mortgage for Your Child?