Putting your child’s name on your deed may seem like an easy way for your child to inherit your house upon your passing, a way to avoid probate, or a solution to ensure your home is not counted as a resource for Medicaid at the time you need nursing home care.  Unfortunately, putting your child’s name on the deed can have adverse consequences that may be far more costly than a well-advised estate plan.  The following are some important factors to consider before putting your child’s name on your house deed:

1.     Creditor and Bankruptcy Claims.  In the event that your child has creditors, is involved in a lawsuit, or bankruptcy, your real estate could be subject to the liens or creditor claims of your child.   This could include, but is not limited to: credit card debts, bank loans your child falls behind on, or lawsuits resulting from liability in an accident.   Your house may become part of the court proceedings and an available resource to satisfy settlements, liens, creditors and the like.   In some circumstances, the court could even force the sale of your home to satisfy your child’s creditors or their bankruptcy claims.

2.     Loss of Control of the Asset.  If you decide you want to sell your home or you have to sell the property to pay for your nursing home care, or any other reason, your child will need to agree to said sale and will have to sign the deed transferring the property to the buyer. Furthermore, your child will be entitled to a portion of the proceeds from the sale of the real estate. 

3.     Divorce. If your child experiences a divorce, the family court will equitably divide all property owned by your child and his or her spouse.  If your child is on your deed, then your child’s interest in your home may be property that is considered an asset of your child’s marriage, and could be subject to division by the family court.

4.     Sold Without Your Approval. Your son or daughter could convey their interest in the property without your permission, for example, he or she could sell their interest in the home to another person without your approval.  

5.     Capital Gains.  There may be capital gains tax issues for your child.  Capital Gains Tax is calculated based on the difference between what you paid for your home versus what you sell it for.  For example, if you paid $100,000 for your house, and upon your death it is worth $200,000, you have capital gains of $100,000.   If you leave your house in your Will or Trust to your children, they will owe no capital gains tax upon your death.  However, if you added your child’s name to the deed and gave him half of your house during your lifetime, then your child will owe capital gains on his share based on your purchase price, regardless of when the house is sold.  By way of example, if you purchased the house for $100,000 and the house is now worth $200,000, then upon your death, if your house is sold for $200,000, your son will owe capital gains on half of however much the house appreciated since your original purchase date.  In this example, he would owe capital gains on $50,000 which will be around 20% which equals about $10,000.

There may be additional factors to consider in your particular situation, however, in general, putting your child’s name on your home can end up costing more than you think.   The experienced Estate Planning Attorneys at Simpson Law Firm can assist you in avoiding costly pitfalls and ensure you have a dependable estate plan in place.  Contact us for an appointment today by calling 803-764-9555 or by emailing us at melissa@simpsonlawfirm.com.