As you age, you may start to focus more on passing down your assets to your loved ones. For example, if you own your home, you may want to make sure that an adult child gets the home after you pass away. While it may seem like a quick and easy way to ensure that you achieve that goal, the Vero Beach attorneys at Kulas & Crawford explain why you should not put your adult child on the deed to your house.
Passing Down Your House
Like many people, your home may be your most valuable asset. It may also hold deep emotional value to you and your children. If you already know that you want an adult child to inherit your home after you pass away, it may seem like adding them to the deed now will save a few steps when the time comes. In theory, that does make sense; however, in practice there are several reasons why co-owning your home with your adult child is not a good idea.
Why Co-Owning Your House with Your Child Is Not the Best Option
Consider the following reasons why adding your child to the deed of your home, effectively making you co-owners, is not usually the best option:
- Divorce. The moment you add your child’s name to the deed, he/she becomes a co-owner of a valuable asset. If your child is currently married and subsequently goes through a divorce, your child’s equity in your home may be considered a marital asset. On the other hand, if your child outright inherited the home after your death, the entire value of the home would be treated as separate property in a divorce.
- Medicaid eligibility. At some point down the road, you may need long-term care. Unless you can afford to pay for that care out of pocket, you may need to qualify for Medicaid. If it has been less then five years since you added your child to the deed, that gift could cause Medicaid to impose a waiting period before you are eligible for benefits. If, instead, you incorporated Medicaid planning into your estate plan, your home could be protected, and your eligibility ensured.
- Creditors. Even if your child has always been great at handing money, anyone can experience financial problems. Once you put your child’s name on the deed to your house, your child’s financial problems become your financial problems. Creditors could attach a lien to the home for your child’s debts.
- Capital gains taxes. If you give your child half ownership of the house while you are alive, your child’s basis in the house will be your basis. If your child later sells the house, he/she will likely incur a hefty capital gains tax bill. If you gift the house to your child upon your death, however, the house will receive a stepped-up basis, meaning the basis will be determined by the value of the home at the time of your death, resulting in a much lower capital gains tax bill.
- Loss of control. If none of the previous concerns give you pause, the loss of control that will result if you put your child on your deed should do so. Once your child is a co-owner, you cannot refinance or sell the home without his/her consent. Moreover, you cannot change your mind and take your child off the deed without your child signing a quitclaim deed. No matter how good your relationship is with your child, the loss of control over your own home should be sufficient to make you think twice about adding him/her to the deed.
Do You Have Estate Planning Questions?
To learn more, please join us for an upcoming FREE seminar. If you have additional questions or concerns about how to pass down your home or other estate planning questions, please contact an experienced Port St. Lucie estate planning attorney at Kulas Law Group by calling (772) 398-0720 to schedule a consultation.