Why You Should NOT Put Your Child’s Name on Your Deed
Many of our clients want to leave their home to a child and contemplate putting their child’s name on the deed. While this may seem like a simple and inexpensive idea, putting your child’s name on your deed can actually be financially disastrous. Before you add a child’s name to your deed, please consider the following:
- Title Issues
By adding your child’s name to your deed, you are giving an ownership interest to your child. This can result in you not being able to refinance your mortgage without your child’s permission. Even worse is that your child may be able to sell their interest in your home without your consent.
- Claims by Creditors
If your child’s name is on the deed then their share of the property may be subject to his or her creditor claims, including claims from credit card companies, car accident liability claims, or possibly subject to criminal restitution.
- Divorce Claims
Nearly half of all marriages end in divorce. If your child gets divorced their assets will be divided by the court. Any individual on a deed is an owner of the property and if your child goes through a divorce, their portion may be subject to division in the divorce proceedings. This would mean your former son-in-law or daughter-in-law may be entitled to a portion of your home.
- Step-Up in Basis
Capital gain is the difference between your basis (purchase price) and the sale price. If you purchased a home for $300,000 and sold the same property years later for $500,000 you would pay tax on your gain of $200,000, with some exceptions (Principal Residence Exclusion).
If you added your child to the deed while living, your child will receive your basis (purchase price) in the home and if your child sells the house after your death, your child will likely incur a capital gain tax for the difference between your purchase price and the eventual sale price. If, however, your child received your home through proper Estate Planning documents, your child could receive a step-up in basis to your date of death value of the property. Using a Revocable Trust to pass your home can: 1) ensure no gift tax return is needed at transfer, 2) allow you to remain in control of the house while living, 3) permit your child to receive a step-up in basis, and 4) avoid Probate on the transfer of the home.
If you need help protecting your assets and loved ones in the event of death or disability, call us at 301-696-0567 or self-schedule online at lenaclarklegal.com.
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