Will my son inherit the house?
Q: I purchased a house with my married son several years ago for him to live in. My husband and I gave him the money for the down payment. Only my credit was checked when we purchased it.
Both my son’s name and my name are on the deed to the home that my son lives in. His wife, whom he was married to at the time of the purchase is not on the deed to the home. My son pays all of the expenses relating to the home he lives in. On my side, my husband and I have a living trust for all of our assets including the home he and I live in. This trust provides for our assets to go to our four kids when the last of us dies.
Trust used to purchase home with son
I used my name and not the trust’s name to buy the home with my son. I was told that since the house was not in the trust, when I die, my share of the house will go to my son. More recently I was told that my will covers this issue and will cause my share of the home to go into the trust. However, I want my son to get my share of the home when I die.
How do I protect my son from having his home end up in my trust? Also, To further complicate the issue, my son was listed as “an unmarried man” on the deed to his home and it seems to me that without her name on the deed, his wife is left unprotected. Is there a way to change this?
Can I put the house in his name without losing mortgage rate?
One more thing: We have a great mortgage interest rate and don’t want to lose it. Is there a way to put the house solely in their names without having to refinance the loan?
A: Thank you for your question. Let’s start with the home you own with your son. You’ve said that you and your son own that home in your own names, but you didn’t tell us how the two of you hold title to the home. Of the many ways you could own title to the home, the most common would be for the two of you to own the home either as joint tenants with rights of survivorship or as tenants in common.
Will my son inherit the house if we’re joint tenants?
If you own the home as joint tenants and you die, your ownership of the home will automatically go to your son. Even if your will or trust says otherwise. The manner in which you hold title to the home — in this case as joint tenants with rights of survivorship — would control the situation.
But, and this is significant, if your son predeceases you, you’d end up as the sole owner of the home. Your son’s wife might have a spousal interest but the joint tenancy would mean that his share of the property would be transferred to your name.
Joint tenancy vs. tenants-in-common
On the other hand, let’s say you purchased the home as tenants in common. And, let’s further assume each of you owns a 50 percent share of the home, when you die, your share of the home will be distributed as provided in your estate documents. If your will provides for the home and all of your other possessions to end up in the trust, the home would go to the trust.
You never can tell what will happen in life. The good news is there are several things you can do once you determine how you and your son own the title to the home in question. One of the things you can do is set up a separate trust that would own the home. Once you put the home into that new trust, you can decide exactly what you want to happen to the home should you die, or your son dies.
One option for son to inherit the house: Create a second trust
The new trust will also stipulate what happens when it comes to your daughter-in-law. You are allowed to transfer the home into the trust without causing any issues with the lender. That way, you can keep your existing loan. And, you’ll know your son and daughter-in-law are taken care of by the terms of the new trust document.
Another option: simply transfer your ownership of the home to your son or to your son and your daughter-in-law. This option takes you out of the ownership of the property but keeps you on the hook for the mortgage.
Be aware of consequences to adding child to a deed
We usually don’t recommend that people give away property when they’re still on the mortgage. But, we’ll leave it to you to decide whether you’d want to take that step with your son. That part is about trust. We’ve written other columns that deal with the issue of federal income taxes and gifts to children. So, we won’t discuss how to handle any gift tax issues here.
You can also amend your current trust document to include any interest that the trust gets in the home. These can be directed to be given to your son. Let’s say you die first and your interest in the home ends up in the trust. The trust document could specifically state that if that happens, the trust should transfer the trust ownership interest in the home to your son. Even if all of the other assets get evenly divided.
There are other options that you can discuss with an estate attorney and we encourage you to talk to yours. Gather up your trust documents and the deed and walk through your options with the estate attorney.