Putting Your Child’s Name on a Deed – A Simple Solution That May Cost You Dearly
For a variety of reasons, people ask about putting a child’s name on a deed to real property they own. They may do so as a means of avoiding probate. They may do so to try and become eligible for Medicaid benefits. They may do so in order for the child to be able to act on their behalf. It is seen as a simple way to accomplish a desired outcome. Unfortunately, as is often the case, there are real perils to such a decision. Here are a few problems that can arise:
Creditor Claims. This is a big one. If a child is on title and ends up with a judgment against him or her, that judgment can become a lien on your real property and the creditor can attempt to seize the child’s interest and force a sale.
Bankruptcy. If those creditor problems are bad enough and a child ends up needing to file for bankruptcy, your real property is now an asset of the bankruptcy estate and again his/her interest could be sold to a third-party who could potentially force a sale.
Divorce. If your child goes through a divorce while owning an interest in your property, the property now becomes in part subject to the divorce proceedings and who knows how that could end up.
Taxes. When you die and a child inherits your property, they commonly get what is known as a stepped-up basis. If they own an interest at your death, that interest does not get a step-up. This will result in higher taxes when the property is sold.
More Taxes. Additionally, if the real property is a home, you are entitled to a personal residence exemption when selling. If your child doesn’t live in the home they will not be entitled to the exemption and that portion of the sales price will be subject to tax.
Title Issues. If you want to sell, re-finance, or take any action that effects the title of the home you will require the cooperation of that individual.
More Title Issues. If that individual dies before you, depending on how the property has been titled, a probate may be necessary for that person and you may not be the beneficiary.
Family Fights. If a child inherits your property because they are a co-owner with rights of survivorship, it is now their property. They are under no obligation to share the proceeds of any sale with your other children. The family fights over this can get downright ugly.
These are just a handful of ways this “simple” strategy can backfire. There are so many others, too numerous to go through. However, there are ways to reach your goals in ways that don’t come with such a tremendous downside risk. If you want to do things the right way, speak with a qualified attorney who can help.