Expert: Jessica Bryan - 4/11/2010

Question
Recently my mother became single and is ready to retire.  With the loss of my dad and his income my mother no longer can afford her home and will loose it.  She can't sell because with declining home values she would be left with nothing.  Therefore, my husband and I have agreed to loan her the money for refinancing.  How do we become investors in her home?

Our bank mortgage broker (federal credit union) stated that we had to gift the money then do a quick deed.  Is this correct? If so I have 3 questions...

First, does she have to pay taxes on this money since we already paid the taxes and took it from our retirement investments.  

Second, I read an already asked question that stated if we gift the money its illegal to get a promisory note, is that correct?  

Third my husband wants to be on the deed in case something happens to my mother physically, mentally or if she remarries (so that we will not be out of our money).

Thanking you in advance, Kim

Answer
Dear Kim;
Your question involves tax ramifications along with those things that the tax laws currently allow.  Because these things may vary from state to state, it is often important to discuss your questions with tax and estate experts.  Certainly you can gift money but once done you are doing just that--giving a gift which you don't expect back.  Sometimes when money is gifted, it can be placed into an account that your mother could have access to as well; but with a promissory note it is no longer a gift...it is a loan and should be treated as such.  I think that the best thing to do is to become part owners doing the funding of the down payment and refinance based on that down payment.  You will then go on title and can have your mother make payments to you as a renter.  This is one solution but there are others as well.  Talking to a lender, you will be able to get pre-qualified and decide what you can and should do based on their restrictions.

Best wishes,
Jessica Bryan