Is it okay to keep the house in the name of the deceased to help out a beneficiary?

It's not always easy to carry out the instructions in a will. It would be so much simpler if reality didn't have a way of putting up obstacles. Recently a reader asked me about keeping a major asset in the name of the deceased in order to help out a beneficiary. Is it a good idea? Here are my thoughts on it.

"There is a beneficiary of a house that is having a difficult time qualifying to assume the mortgage of a house he inherited. However, he is able to make the payments on the existing mortgage. As executor, I would like to do him a favour and keep the mortgage in the name of the deceased, as he is able to make the payments.The beneficiary lives in the house and does not want to lose it or sell it. The house was not the deceased primary residence. My question is: What are the tax and other implications that could arise from this?"

I assume there are no other beneficiaries or you wouldn't even be considering this move. And I don't just mean beneficiaries of the house, but of the whole estate.

You said that the house was not the deceased's principal residence, which means there may be a capital gains tax liability arising when it transfers from the deceased to the estate. The longer you keep the house in the name of the deceased, the greater the chance there will be tax owing (assuming that property values increase, as most do). This tax must be paid by the estate and if there is not enough there, the house should be sold to cover the tax. This is why I said there probably aren't any other beneficiaries; taxes have to be paid before beneficiaries are paid and I can't see them waiting years to find out if they are going to inherit anything after taxes.

If you keep the house in the name of the deceased, you are assuming a great deal of personal liability that you would not assume if you transferred or sold the house. While the house is in the name of the deceased or the estate, you are responsible for it. If the house is not insured and burns down, you will have to pay to replace it. As the executor, you are personally responsible for any loss to the estate. Don't kid yourself that keeping it in the name of the deceased rather than the name of the estate will protect you.

In addition to the potential liability on the loss of the asset, there is also the problem of maintaining it. The cost of running that house is on you as the executor, even if the beneficiary lives there. You will have to pay for property tax, repairs, insurance, etc. because the house is in the name of the deceased and therefore in your care. Certainly you can make an agreement with the future beneficiary to take care of all of those things, but what if he doesn't? What if he loses his job or something else happens and he fails to keep up payments on these things? What if he just moves out? You said that he is the beneficiary of a house. You didn't say that he is the beneficiary of any funds. So there will be nothing in the estate for you to fall back on if he drops the ball.

Also consider the possibility that something could occur on that property that places liability on the estate, such as a pedestrian being injured on an icy sidewalk or a visitor being injured in a fire. If such an event occurs, the estate will be sued and by extension, so will you personally because you didn't transfer the house.

My final point is that sooner or later the mortgage is going to come up for renewal. How is that going to work when the bank finds out the mortgage holder is actually deceased?

You can keep the house in the name of the deceased if you want to. Something I say often to people is that whether you can do something is not the same question as whether  you should do something. It seems to me that the favour you want to do for this beneficiary is pretty darn huge considering the risk you will be taking.

I know you're trying to make this work for the beneficiary, and it's great that you are. But keep looking for other options.