Five Reasons NOT to Put Your Children on the Deed – Estate Planning Bella Vista
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When you add your children to the deed during your lifetime, it can cause more problems that it solves. Putting your children on the deed is a lifetime gift to your children. This type of gift has consequences you may not have considered.
First, it is probably a federally taxable gift and you’ll need to file a gift tax return. Under current federal law, you are allowed to give up to $17,000.00 per person per year without filing a gift tax return. If you give away even a penny more than that, then you must file the return. This includes any annual gifts other than the real estate.
Second, their financial problems become your financial problems. Every other driver on the street is a lawsuit waiting to happen. A lawsuit that they can use “your” house to pay for. Their future divorce becomes your financial problem. Their IRS problems become your IRS problems. You may find yourself owning the house with your child’s creditors, not your child. A local court may even force the house sold to pay the creditor.
Third, capital gains tax is due. When you (plural) sell the home, you may only exclude your fraction of the house from capital gains. Your children may end up owing a hefty capital gains tax bill. You could make them the beneficiary of the house and save them from the capital gains tax.
Fourth, you could lose any freeze or advantage in your property taxes. You could even trigger the assessor to come out and re-assess your house.
Fifth, these types of gifts can be impossible to undo. If you change your mind later, then the children have to sign a deed giving you the house back. I’ve seen a few cases where the children won’t sign.
The solution is simple. Don’t put your children on the deed. Instead, leave the house to them through a beneficiary designation or a trust. The best solution to avoid probate is a comprehensive estate plan.