Q: I would like to substitute my two children's names for mine and make them co-owners with my wife of our house. There is a modest balance on our mortgage that we can pay off, if necessary. However, I would prefer to transfer my portion without paying off the balance. What do you advise?
A: Generally speaking, if you are transferring your property to a family member, and your wife remains an owner, most banks will not require that the mortgage be paid off. Although there may be a "due-on-sale" clause in your mortgage, it is highly doubtful that the kind of transaction you describe is, in fact, a sale that would trigger this.
While your lender probably will not raise any objections to your plan, you should discuss it with the institution just to be on the safe side.
But before you remove your name from the house title, consult with a tax counselor, because serious legal and financial questions are involved.
Will this be considered a gift, and will a substantial gift tax have to be paid? Will the Internal Revenue Service treat it as a sale, in which case you will have to pay a capital gains tax on your portion of the property?
How will your children take title with your wife? Will they be joint tenants with right of survivorship, or will they be tenants in common, in which case each owns a divisible interest in the property?
Keep in mind that your house may be a significant asset that you may want or need in the years to come. If you and your wife continue to own the property, you are free to take on an additional mortgage or sell it as you see fit.
Once the children become owners, they may be a stumbling block if you need to take action. While children are often cooperative, they do tend to have their own minds, and you may find that you do not want to have them control the destiny of your house.
If the children are minors, you will have to have guardians appointed if you want to sell, and this may cause additional complexities, as well as additional costs.
As you can see, I have serious reservations about your idea. You should ask yourself if, in the long run, it really is worth it.