‘Why You May Not Want To Put Your Children’s Name On The Deed To Your Home’



Some parents put their children’s names on the deed to their home so that when the parents die the property will pass to their children without probate. Here are some things to consider before adding your children to your deed:

1. When you add your child’s name to your deed the internal revenue service considers this a gift and a gift tax return should be filed;

2. If your home has appreciated in value since the time that you bought it and you “GIFT IT” to your child, the child will not get a stepped-up tax basis. For example, suppose you bought your home 17 years ago for $300,000 and the house is now worth $800,000. If you add your child onto the deed and the child sells the property after you die, that sale will result in a $500,000 capital gain, most of which will be taxable unless certain exceptions apply. On the other hand, if the child simply inherits the property when you die there is no gift and the child gets a stepped-up tax basis to $800,000 (the fair market value on the date you died, and not what you paid for the property 17 years ago) resulting in no capital gains tax.

3. If your child gets sued because he or she caused a car accident in which someone was seriously injured, the injured party could go after all of your child’s assets including your home since your child is on the deed and owns a portion of your home.

If you own a home you may want to consider getting a TRUST which will not only avoid the pitfalls discussed above but also AVOID A COSTLY PROBATE!!!

Traditionally the most common method of transferring property upon death is a will. In a will the decedent states who will be in charge of his or her estate upon death (the executor) and who will receive his or her property (the beneficiaries). If the decedent owned a home or other real property which is not held in joint tenancy, and the beneficiary is not the decedent’s surviving spouse, then the will must be probated in order for title to the property to pass to the beneficiaries. The cost to probate a $600,000 estate (gross value without mortgage deduction) including attorney fees, executor fees, and court costs is approximately $32,000. This is money that could have gone to the family if the decedent had a trust. A Revocable Trust, sometimes referred to as a Living Trust, is a legal device that can be used to avoid the cost of probate.

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