There probably is no downside. Legally, the property now belongs to your wife, though she does have a moral obligation to use it for her father's benefit. The house is subject to any claim by your wife's creditors should she get into financial trouble or be sued. In some cases, though it sounds like not in yours, the gift of the house can cause greater capital gains and a greater tax when it is sold. Here's how that would work: If, for instance, your father-in-law purchased the house for $150,000 and it was now worth $350,000, it would have $200,000 of gain which under current federal law would be taxed at 15% (plus any Tennessee tax). If your father-in-law still owned it and sold it, he could exclude up to $250,000 of gain and avoid any tax. If your wife inherited it, the "basis" on which the capital gain is calculated would "step up" from the $150,000 purchase price to the $400,000 value on the date of your father-in-law's death, also avoiding any gain and any tax. In your case, however, your wife may be better off receiving the house as a gift if its value goes up over time or if you have a capital loss on its sale which you can use to offset gain realized on other assets you may have.
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