Q. I’m trying to make things as easy as possible after I’m gone. Someone told me I should add my kids to the title on my house to avoid probate. How can I do this?
A. We get this question on a regular basis. This is one of those times when it’s hard to know exactly how to answer. The answer the patron wants is pretty straightforward. You can do it by signing a grant deed transferring ownership from you (as sole owner) to you and each of your children (as joint tenants with right of survivorship). The Nolo Press book “Deeds for California Real Estate” has samples and instructions, and it’s right behind the reference desk. The problem is, adding a child’s name to a deed can be a pretty bad idea.
Usually people hope that adding their children to the title of their home will make it easier for the kids to inherit when they pass away, and let them avoid a lengthy and expensive probate. This works well for bank accounts, but it’s a problematic way to transfer a home. Most of the time, putting the house in a trust is a better option.
If you add your kids to the title, each of them becomes a full, legal owner immediately. This causes all kinds of complications.
A common problem, especially in this economy, is that if any of the kids gets into financial trouble, their creditors can put liens on the house. (16 Cal. Jur. 3d Cotenancy and Joint Ownership § 29.) These liens make it harder to sell the house and can affect all co-owners’ credit ratings.
The Nolo Press blog “Ask Liza: Everyday Estate Planning” discusses this problem in two helpful posts: “Should I add my son to the title of my house?” (April 2, 2012) and “Adding Names to House Title” (Dec. 31, 2010). Author Liza Weiman Hanks explains that there are other disadvantages too:
- Your kids will pay more tax. If you add them while you are alive, it is treated as a gift. As a result, they receive their share with a capital gains tax basis of what you originally paid for that house. If it’s worth more now than when you bought it, they’ll owe capital gains taxes on the increase if they ever sell it. (If they inherit it instead, they don’t have to pay those capital gains.)
- Your taxes will be more complicated next year. You are making taxable gifts to your children of portions of the value of the house. If any portion is worth more than $13,000 you must report it to the IRS, and it counts toward your lifetime total tax-free gift limit.
- There may also be other tax consequences.
- Your Medicaid eligibility could be affected under certain circumstances.
If any family disputes arise, or if any of the kids is less than trustworthy, you and your home may be directly affected. Remember, each child is a full legal owner—you can’t change your mind later if problems arise. Any or all of the new owners can move in to your house, get a mortgage, rent it out, or even sell his or her interest without permission—even while you’re still living there. If your family all get along, you may think this is highly unlikely—and you’re probably right—but sadly we see quite a few siblings caught up in court cases about this type of dispute.
A trust is a bit more complicated to set up. But it lets you maintain control of your home while you live, while still passing the house (and your other assets) to your kids without probate. You can find out more about creating a living trust at the law library, or consult an attorney.
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