7 Reasons Not to Put Your Adult Child On Your Home Deed
As an older parent, you may think it’s a good idea to put your adult child on your home deed because it’s a way for your house to avoid probate. After all, probate costs both time and money, so avoiding it is often high on a person’s list of estate planning goals. You could just update the deed to include you and your adult child as joint tenancy with the right of survivorship. That way if you die, the ownership of the home automatically goes to your adult child. So, is this a good idea?
One issue with this to keep in mind is that the house might not avoid probate if your child dies before you or becomes incapacitated or disabled prior to your death. There are also 7 problems that putting your adult child on your home deed could cause:
- MassHealth Eligibility: If you need to apply for MassHealth, if you added your adult child within five years of your application date, it may be considered a gift which would result in a disqualification period (a period of time you would have to pay for your long-term care).
- Creditors: If your child has financial issues or ever encounters financial issues, a creditor would be able put a lien on the house to be compensated for the debt. That creditor could only get to your child’s half interest in the equity, but it’s still something you never want to let happen.
- Divorce: If your child gets divorced, the house, which is partially owned by your child, would be subject to division by the court. That means that during the divorce process, your child’s spouse may be entitled to a share of your home.
- Gift Taxes: You may incur a gift tax. In 2023, if you put your child’s name on the deed and it’s seen by the IRS as being a gift to your child of over $17,000, you’ll incur a federal gift tax.
- Capital Gains Tax: By giving your child one-half the house during your lifetime, her basis in that asset will be the same as yours. So, if she ever goes to sell the home, your child will be liable for capital gains tax on the entire increase in value of the home since the day you bought it.
- Lawsuits: If your child is uninsured or under-insured and gets into an accident, the plaintiff of the lawsuit may be able to get a lien against the house. If this occurs, you wouldn’t be able to sell or refinance the property without paying off the lien.
- Loss of Control: You will lose control over your house. If you want to sell or refinance it, you’ll need your child’s consent. If you want to take your child off the deed, they will have to sign a quitclaim deed. If your child refuses to sign it, you would face a legal battle.
If your goal is to have the house avoid probate, a revocable trust may be a better option. A trust holds title to the assets you transfer to it. Think of it like a box that can hold your assets during your lifetime and thereafter for the benefit of your beneficiaries. A revocable trust can be changed or revoked at any time during your lifetime.
You transfer your house to the revocable trust and include wording in your trust that your child will inherit the house when you die. When you pass away, the house will go to your child without having to go through probate.
Before you make any decisions about your home, it’s best to talk to a Massachusetts estate planning lawyer. In a free consultation, I’ll get to know you, your estate planning goals, the assets you have and whether you need some asset protection, and your wishes for how you’d like your estate to be distributed when you pass away. Then we’ll work to create a comprehensive estate plan to meet your needs. Contact us today to schedule a confidential, no-cost consultation.
