Putting child on deed a legal quagmire
As we age, we often want to ease the transition of our property to the next generation.
To that end, I often see people place their children on the deed to their house.
The person believes they are making it easier for his family member by avoiding probate, or protecting the house from creditors. What he does not realize is the legal quagmire that he just created.
First, the person has just added his family member as an owner of the property – with all the rights, responsibilities, and liabilities of being an owner.
This means that if the person ever wants to sell or refinance the property, the family member must sign off.
They may be able to work together now, but what if he wants to sell her childhood home? The person must literally get written permission from their child to manage his own property.
Additionally, adding the child to the property does not affect the mortgage.
In fact, it now exposes the child to the parent’s property tax bills, and the parent to any of the child’s creditors.
For example, the child may have creditors who could now seek to have that debt satisfied by selling the child’s ownership interest in the parent’s home.
Finally, when a person adds someone onto the deed for property, it creates a gift within the meaning of the tax code.
If not treated properly, the person and his family member may incur significant tax penalties.
These consequences can be easily avoided through proper estate planning.
The goal of passing the home without probate, or unnecessary court costs and government fees, can be achieved without the loss of ownership, without the exposure to another’s creditors, and without gift tax penalties.
It just takes a little planning to determine the right vehicle to meet your needs.