The Elder Law Forum by Professor Michael Myers Editor's Note: The Elder Law Forum is a public service of The University of South Dakota School of Law, an extension of the SENIOR LEGAL HOTLINE available at no cost to persons 60 and older at 605-677-6343 and firstname.lastname@example.org during regular business hours. The Elder Law Forum delivers information and educational material by radio, a weekly newspaper column, and Law School research papers placed on the USD School of Law Web site. Professor Myers teaches Elder Law at the School of Law.
Laws in Heaven
Parental love has no age limitation. Parents in their 60s, 70s, and 80s frequently empty their savings accounts, mortgage their homes, co-sign loans, and do whatever they can to lend financial assistance to their "kids," who themselves may be in their 30s, 40s, or even 50s. It's instinctive.
That was the case with a USD Senior Legal Hotline caller (1-800-747-1895; email@example.com), a woman age 64, retired, with a 65-year-old disabled husband. They live on a fixed income. Their home, appraised at $140,000, is their main asset. They have four grown children.
"I wish to help my daughter and her husband," she said. "They are behind on their $700-a-month payments on a contract for deed on an $85,000 home and the seller is threatening to foreclose on the contract. Yesterday I took out a second mortgage on our home for $80,000 and I am going to use it to pay off the contract balance."
"My question," she continued, "is whether I should place my name alone on the deed, or along with my daughter and her husband, or not at all? The banker said that if I own the house, I will become a landlord and the payments will be rent on which I will have to pay income tax."
"We can take care of the banker's concern," I advised, after reminding her that she was mortgaging the rest of her and her husband's lives, and it was unlikely they would pay off their new mortgage during their lifetimes. She agreed this was not in their best financial interest and bordered on the irrational. "But I love my daughter," she emphasized.
"But I've been making most of the payments anyway; making one large payment will be easier," she explained. The picture was clear. Mother had been a lifelong source of support for her 30-something daughter.
"Does your daughter or her husband have any judgments against them?" I asked. She did not know, but upon checking, there were six judgments against the daughter, which meant they would attach to the property. I recommended she take an assignment of the contract for deed, in effect stepping into the shoes of the seller of the property.
Since the contract for deed predated the six judgments, if necessary, Mother could foreclose on the house and defeat the other judgment creditors. And with regard to the banker's concern about rent � the payments would be equity payments, not rent payments, and since the basis of the house was $80,000, payments up to that amount would not be regarded as income. Hence no income tax.
Parental love can be expensive. But there are no garnishment laws in heaven.