Don’t Put Your Kids On Your Deeds
It is generally a mistake to put your kids on your property deed.
It Transfers an Interest in the PropertyIf you put your child's name on the deed, your child owns part of the house. So, they can force a sale. If they get divorced, your house is now part of the divorce. If they file Bankruptcy they can only protect one house, so that could be problematic. I had another attorney tell me about a case where the parents put their 19-year-old child on the deed to their house. She proceeded to sell it out from under them, and there was nothing that they could do. Was it true, not sure. Could it happen, yes. Regardless of the reason for putting your child on the deed, by putting them on they own part of the house. Parents put their children on their deeds to pass the property and avoid probate. But, there are several things that we can do that will help you avoid probate. We can set up a trust and transfer ownership to the trust. We can draft a ladybird deed that allows you to retain ownership for your life and then transfer ownership at death. So, there is no need to use a deed as a way to estate plan.
AlterativesSome people might say that they put their kids on the deed to save money. But, your house is likely one of the biggest investments you will make your entire life. Is that really the place to try to save a couple of dollars. I think there are other places to save money that put you at less risk. There are also tax consequences to consider. First, if you get a lifetime gift, it comes with what is called a carryover basis. That means that when your children go to sell the house, they will realize a capital gain equal to the difference between the purchase price of the house (plus improvements) and the sale price of the house. This can be a significant number. Conversely, if you receive your parents house through inheritance (via trust, will, or ladybird deed) then you get a step up basis. This means that if you sell the house you will realize capital gains on the value of the house at the time of death the sale price. This is likely a small number or even zero.