If you’re the parent of adult children, you might be tempted to add your kids to the deed to your house as a strategy for avoiding probate. After all, you want your kids to inherit your house, so you might as well put them on the title now, right? Wrong! Taking this step might lead to unintended consequences, including:
1. Subjecting your property to your children’s mistakes. Once your kids are co-owners of your home, their creditors can get to your home for purposes of paying off the debt. So, if your child gets behind on his or her bills, it could jeopardize your house. The same is true when it comes to lawsuits – if your child is in a car accident that results in a lawsuit, your home becomes vulnerable to any money judgment entered against him or her.
2. Unanticipated tax liability. In the eyes of the IRS, adding your children to your deed is the same as giving them a gift. The amount of the gift is the percentage of your children’s ownership under the deed. Depending on the value of your home and your financial situation, this may trigger gift taxes. At the very least, it will likely require that you file a gift tax return to report the transfer.
Adding your children to your deed in this way can also result in unwanted income tax consequences for your children if, after your death, they choose to sell the property. Gifting the property to them during your lifetime, as opposed to leaving it to them at your death, can increase the amount of capital gains tax they’ll ultimately pay when the property is sold.
3. Giving your children unwanted control. Once your children are added to your deed, they’re co-owners of your home. This means that you can no longer decide on your own what to do with the property. If you want to sell or refinance, you’ll need your kids’ signatures.
A better option for transferring your home to your children while avoiding probate might be to establish a Living Trust. It lets you retain full control of the property during your lifetime, it puts you and your children in a better position when it comes to tax concerns, and it keeps your property safe from your children’s creditors.
Latest posts by Cheryl David (see all)
- Basic Questions About Estate Planning – How do I Avoid Family Conflicts Over my Estate? Part 2 - November 24, 2015
- What is a Guardian Ad Litem, and how is it Different From a Guardian? - November 23, 2015
- Basic Questions About Estate Planning – What if my Elderly Parents Need a Guardian? - November 9, 2015