According to The Ledger’s recent article, “Leaving your home to a family member? Consider these options,” it’s surprising that the lender wouldn’t allow this 77-year-old widowed woman to add her daughter to the title of her home. Typically, the mortgage lender likes to make sure that the borrower on the loan is the same as the owners on the title to the property. However, if a senior wanted to add her daughter, it’s not uncommon for a lender to allow a non-borrower spouse or child to be on the title but not on the loan. When the lender permits this, all the loan documents are signed by the borrower and a few documents would also be signed by the non-borrowing owner of the home.
In this situation where the mother closed on the loan, and the lender refused to put the daughter on the title to the home, there are a few options. One option is to do nothing but be certain sure that there’s a valid will in place with instructions that the home is to go to the daughter. When the mother passes away, the daughter would have to wait while the will is probated and then transfer the title to her name or sell the place. The probate process will increase some costs and can be a little stressful, especially if someone is grieving the loss of a family member.
A second option is for the mother to create a living trust and transfer the title of the home to the trust—she would be the owner and trustee. The mother would name her daughter as the successor beneficiary and trustee of the trust. Upon the mother’s death, the daughter would assume the role of the trustee.
The next option is a transfer on death (or “TOD”) instrument. Some real estate professionals don’t like to use this document. It may not be acceptable depending on state law, but the TOD would allow the mother to record a document now that would state that upon her death the home would go to her daughter.
Finally, the mother could transfer ownership of the home to her daughter and herself with a quitclaim deed to hold the home as joint tenants with rights of survivorship. Upon the mother’s death, the home would automatically become the daughter’s home. However, this type of transfer of the home might trigger the lender’s “due on sale” requirement in the mortgage. Thus, if the lender wanted to be a stickler, they could argue that the mother violated the terms of that loan and is in default.
It is also worth mentioning that there may be tax consequences for the daughter. If the mother goes with the last option and puts her daughter on the title to the property, she is effectively gifting her half of the value of the home. This may cause tax issues in the future because the daughter will forfeit her ability to get a stepped-up basis. However, if the daughter gets the title to the home through a will, the living trust, or the transfer on death instrument, she’ll inherit the home at the home’s value at or around the time of the mother’s death (the stepped-up basis). You should work with an experienced estate planning attorney to get the best advice.
Reference: The Ledger (Jan. 11, 2020) “Leaving your home to a family member? Consider these options”