Paying off someone else's mortgage

[slowsaver]

My father passed away recently, and I learned he put his his house in a trust with his wife (not my mom). She is living there, but is having a hard time figuring out how to pay the mortgage, and thinks she will have to move. The house is worth about $700k and the remaining mortgage is $192k. The only asset in the trust is the house.

Her son is planning to move in with her to help take care of her and also pay her some rent. He is entitled to 50% of the house in the trust, and I'm entitled to 50%. I'm guessing she will live 10 more years, at least.

I could easily pay off the $192k mortgage, but I'm not really interested in "giving away" money, of course. I was wondering if there is some way I could "buy out" some of the son's share of the trust, so they don't have to move. The idea being that I would get my money back after his mom dies and we sell the house.

Do you guys have any ideas how feasible this is? Given my dad has passed, I think the trust can't be modified. What pitfalls should I watch out for?

 

[pb4uski]

What you might do is to loan the trust the amount by which they can't pay the mortgage, have that loan accrue interest and then the loan is settled when the property is sold... effectively you are providing a reverse mortgage to the trust.

So let's say that there is $500 a month on the mortgage that they can't pay... you provide the shortfall.. let's say it goes on for 10 years and you agree to a 5% interest rate... at the end of 10 years you have fronted $60,000 and the loan balance is $77,641 including interest.

The house sells for $700k... you get the first $77,641 and the remaining $622,359 gets split 50/50... so you get $388,820 and he gets $311,180.

Have it all done up by a lawyer and signed by the parties, and record the loan as an encumberance (like a HELOC or reverse mortgage would be) to ensure that you get your loan back from the house sale proceeds.

As an aside, my understanding is that a trust can be modified if the parties all agree (that being you, his widow and her son)... another reason to talk to a lawyer.

 

[SecondCor521]

As an aside, my understanding is that a trust can be modified if the parties all agree (that being you, his widow and her son)... another reason to talk to a lawyer.

Yup. It's called TEDRA. It's expensive - either the attorney is learning on your dime or the attorney has already learned and is a rare TEDRA specialist, a skill for which they can charge a lot.

I like pb4uski's loan idea better. It'd be a lot cheaper and work just as well. You may want to add covenants that the trust pay for upkeep so your security interest is against something that retains it's value. Also, realize it may be 10 years or it may be 25, so that's something to consider. My Dad was probably going to die at 55, but he's 83 and still doing well. My Mom should have lived to 95, but died at 77 of an unexpected lung disease. You never know.

 

[slowsaver]

Have it all done up by a lawyer and signed by the parties, and record the loan as an encumberance (like a HELOC or reverse mortgage would be) to ensure that you get your loan back from the house sale proceeds.

Interesting idea. What kind of lawyer would do this? One that specializes in real estate, or one that specializes in trusts?

 

[skipro33]

Buy out step mom, (1/2 equity= $254,000) Assume the home and rent it back to stepmom and son.

I learned he put his his house in a trust with his wife (not my mom).

Because the home is in trust w/ step mom and HER son is moving in, anything can happen to cut you out of the deal. She can change the trust any time she decides to and who knows how her son living there might influence her?

He is entitled to 50% of the house in the trust, and I'm entitled to 50%.

How so? You originally stated your father put his house in a trust with your step mom. If so, then how is 100% of the house in a trust with you and your step brother?
Is that perhaps in her will, or the trust is written that way when she dies? If so, then I still think she's able to change the trust to anything she wants.

 

[SecondCor521]

^ Dad probably gave wife a life estate. She gets to live there until she dies, then kids split it. Pretty common arrangement I thought.

 

[slowsaver]

How so? You originally stated your father put his house in a trust with your step mom. If so, then how is 100% of the house in a trust with you and your step brother?

I meant to say the house would be split between us when she dies, so yes, it's totally her house right now.

I appreciate your comment about how I should worry about mother/son cutting me out; however, some other commenters said it is very hard to change a Trust after one person has died -- and I would likely have to sign something whenever that were to happen.

 

[slowsaver]

Let's say I pay off the mortgage ($192k), and then can I just put a lien against the house so that I'll get my money back once it's sold?

My first worry is that me paying off the house would look like income on her taxes, and income tax would need to be paid.

Second worry is that I would not get any sort of interest on the $192k, and she may not move (or die) for a long time.

 

[Teacher Terry]

You need to find out if wife has a life estate. My understanding of that is she can live there until she dies but can’t sell the house.

 

[ivinsfan]

It doesn't sound like this worked out the best for your SM. She has a house she can live but can't afford the house payment. But she no equity and so if she moves she has to pay 100% of her new rent payment. It's not really feasible for her to move.

Do the three of you have a decent relationship? Such as you can sit down in a room and talk this over? That's the first place to start. Depending on the SM income a possible solution might be SM pays 1/3 of the payment, her son pays 1/3 as rent and part owner and you pay 1/3 as part owner. If you go that route I'd suggest you try to have the payment done as autopayment. This keep the payments current and takes the least amount possible out of your pocketbook. And can be changed at any time without a lot of hassle. Once again that solution depends on if you have any good feeling toward each other. Of course it's in your interest to make sure the payments don't fall into default.

 

[Z3Dreamer]

I want to recommend something but you have not stated who the trustees of the trust are. You said that she could sell the house so it sounds like she is a trustee. Typically, but not always, a person that puts their house in a trust grants a life estate to spouse #2, but has the proceeds go to his kids from spouse #1. You have his house in trust but proceeds going to kids from both marriages. Also, many times trust documents plan for events like this where spouse #2 can no longer live in house. Or spouse #2 needs to borrow.

So, my recommendation is to read that trust document, if you have it.

 

[slowsaver]

So, my recommendation is to read that trust document, if you have it.

Yes, I need to do this. I don't have a copy yet. Hopefully I will understand it when I read it.

 

[Z3Dreamer]

Yes, I need to do this. I don't have a copy yet. Hopefully I will understand it when I read it.

If and when I am 85 or so and widowed, and find a young hottie of maybe 75, I would put the house in trust, specify that she gets a life estate. If she can no longer live there or no longer wants to live there, the proceeds of the sale will be used for her but not in one lump sum. The annual benefit will be in the 4% to 10% of the trust balance at the discretion of the trustee, who would be one of my offspring. At her passing, 100% of the proceeds would go to my offspring.

Other standard provisions would apply.

 

[ivinsfan]

Yes, I need to do this. I don't have a copy yet. Hopefully I will understand it when I read it.

I am sorry for your loss and see that your Dad has just recently died. You should be getting more information that can help you make a good decision.

You can see from the replies to your question that many things could be in play here..

 

[pb4uski]

.... Because the home is in trust w/ step mom and HER son is moving in, anything can happen to cut you out of the deal. She can change the trust any time she decides to and who knows how her son living there might influence her?
How so? You originally stated your father put his house in a trust with your step mom. If so, then how is 100% of the house in a trust with you and your step brother?
Is that perhaps in her will, or the trust is written that way when she dies? If so, then I still think she's able to change the trust to anything she wants.

Wrong... trustee can't change the trust... trustee has to administer the trust based on the provisons of the trust.

You misunderstood.... the house is the sole asset of the trust... once step-mom dies then the assets of the trust are distributed to the successor beneficiaries (OP and step-mom's son)... common arrangement... my mom became the successor beneficiary of my dad's trust when he died, when she dies the the trust is instucted to distribute the assets to her children (me and my sisters).

 

[skipro33]

Wrong... trustee can't change the trust... trustee has to administer the trust based on the provisons of the trust.

You misunderstood.... the house is the sole asset of the trust... once step-mom dies then the assets of the trust are distributed to the successor beneficiaries (OP and step-mom's son)... common arrangement... my mom became the successor beneficiary of my dad's trust when he died, when she dies the the trust is instucted to distribute the assets to her children (me and my sisters).

OP needs to know for sure what the document provides in order to protect any interest and especially before spending any money towards it. The attorney that wrote it is a place to start.