I am getting ready to retire and my house is not yet paid off yet. I would like for my daughter to take over the payments if something happens to me. Can this be done?
In short, you can absolutely have your daughter take over the payments if something were to happen to you. Depending on what you mean by something happening to you, the bank does not care who pays them, as long as they get paid. I would be asking if your daughter wants to take over the payments and/or inherit the home. But to answer the question in a more technical way, you would usually accomplish this through a Will or living trust, as well as setting up a general power of attorney. Another way to ensure your daughter receives your home and can make payments if something happens to you, is to title the home in a way that she receives the property at your death. We will cover the Will and Trust first and then we will discuss titling of the house.
With the general power of attorney, you can assign your daughter as your power of attorney over your financial affairs. This would go into effect if you became disabled or incapable of making financial decisions. The general power of attorney would give your daughter the ability to make financial decisions for you in this case. However, if you were to pass away, the Will or living trust would be the document that states your desire to leave your home to your daughter. This would give her the ability to put the home in her name and continue to make payments or sell the home if she chooses.
If you were to pass away, all your assets would have to go through the court system known as “probate” whether you have a Will or not. If you do not have a formal Will, the state of California has a general set of guidelines that they follow which in essence provides you a state drafted Will. Probate will make sure all your debts are settled and any remaining assets are distributed per the guidelines of the Will. Most all assets go to spouse first and if no spouse, then will go to children in equal share so on and so on. Probate is not a perfect system but is usually capable for smaller estates (probably most common is a Will with General Power of Attorney).
If you were to pass away or became disabled and had the home in the name of your living trust, then the trust could make payments during your life and at death, the house would not go through probate and directly go to the person you named in the trust to receive the home. Remember though if you set up a living trust, you have to go to your lender and title the home in the name of the trust. There are too many times I have seen trust created and never funded or have assets placed into them.
If you do not wish to set up a living trust and don't like the prospect that the court system can decide who gets your home, then you can always re-title your home while you are living, naming your daughter as a co-tenet or joint tenant with right of survivorship even if you plan to make all the payments. Before going down this route, I would advise with your accountant as there are several taxable considerations associated with decision as well as lending issues for your daughter going forward as she would have to note ownership of your home and would be liable for any debt on the home. This is more complex and we would need to know more info before recommending this option.
Just an FYI, if your home was underwater and you still owe debt on it, your debt cannot be inherited. So unless your daughter could sell the home for more than it's worth, if you were to pass away she would not be responsible for making payments to the bank unless she was on the title as one of the debtors. This is another reason you may not want to go down the route of adding your daughter to the title.
There are many options for your situation. We recommend consulting a CERTIFIED FINANCIAL PLANNER™ (CFP®) professional from the Financial Planning Association to go over your options and provide you the best recommendation. You can find a CFP professional from FPA by visiting FPA PlannerSearch.
Have a Question?
You may submit a general financial planning question by completing the "Ask a Planner" form. Please be aware your question may be considered for inclusion on FPA's Web site feature, Question of the Week. To protect the privacy of individuals, questions will remain anonymous.