Who Has to Pay Up?

Q: My siblings and I inherited my father's house, which he bought in 2003, in a 55-and-over community. The value of the house is depreciating, and there is no equity, as he used it all for landscaping and improvements through a home-equity line of credit. Are we responsible for paying the mortgage and the home-equity line of credit? Only my father's name is on the promissory note and deed and on the papers for the line of credit. This has become a huge financial burden on my siblings. Will our credit be affected as trustees and beneficiaries of the trust to which he left the house? -- Michelle

A: DEAR MICHELLE: You should consult a lawyer to determine the validity of the trust. Was the property actually transferred to the trust? Many people prepare trust documents but neglect to transfer the property by recording the change on land records.

If the transfer is valid, then you will not have to go to probate. However, until the property is transferred from the trust to you and your siblings, the trustee will have to continue to pay the expenses -- mortgage, taxes and insurance. If the payments are not made, the bank may want to foreclose, but that would not affect your credit.

However, if the property is still in your father's name and was not transferred properly to the trust, you will have to have his estate probated.

State probate laws differ, but here's a general outline: The court will appoint a personal representative, called an executor in some states, who will take title to the property, subject to the terms of the will.

If there was no will (shame on anyone who does not have one) the intestacy laws of the state will control. Under these laws, the legislature decides the priority for inheritance.

The executor is obligated to pay all outstanding debts, including your father's mortgage. In this situation, you and your siblings are not legally obligated to make the mortgage payments, but the house will probably have to be sold to satisfy those legal obligations.

Can you use a rental property and its necessary expenses as a deduction on your income tax? -- Alice

DEAR ALICE: Yes. If you rent out property, there are many deductions that you can take, in addition to interest and real estate taxes. For example, if you hire a real estate agent to help you find a tenant, the fee is a legitimate deduction. Other deductions include property managers' fees, repairs and insurance. You can also depreciate the property (not the land), which may save you from paying more federal income tax.

However, there are limitations if you show a loss. These are called "passive loss" restrictions, and they are complex. You should consult your financial advisers for a complete explanation.

IRS publication 527, "Residential Rental Property," is helpful. It's on the agency's Web site ( http://www.irs.gov).

I'm 61 and in need of advice regarding my mortgage. I bought a home last year using a $124,300 loan. It was a 10-year interest-only loan. At the end of 10 years, I will have to pay principal and interest at 6.75 percent, which will be fixed for 20 more years.