As a homeowner, you might be considering adding your children to your deed to avoid the probate process after you pass away. This decision has significant legal and financial implications that should be carefully considered. Below, we explore the pros and cons of adding your children to your deed, and why consulting with an elder care law attorney can help you make an informed decision.
The Pros
1. Avoiding Probate: The primary advantage of adding your children to your deed is the potential to avoid probate. When you pass away, jointly owned property with rights of survivorship automatically transfers to the surviving co-owners, bypassing the probate process. This can save time and reduce legal expenses for your heirs.
2. Simplified Transfer: By adding your children to your deed, you ensure a straightforward transfer of ownership. This can provide peace of mind knowing that your home will go directly to your children without court intervention.
3. Immediate Ownership Benefits: Your children can start enjoying ownership benefits immediately, such as having a say in property decisions and possibly using the property as collateral for loans.
The Cons
1. Gift Tax Consequences: Adding your children to your deed can be considered a gift, potentially subjecting you to federal gift taxes. The current IRS annual gift tax exclusion and lifetime exemption amounts should be taken into account, but exceeding these limits can result in tax liabilities.
2. Loss of Control: Once your children are added to the deed, they become co-owners with equal rights. This means any decisions about the property, such as selling or refinancing, will require their agreement. This can complicate matters if there are differing opinions.
3. Financial Risks: If your children experience financial difficulties, their share of the property could be at risk. Creditors could place liens on the property, or it could become entangled in divorce settlements, jeopardizing your home’s equity.
4. Tax Consequences: Adding your children to your deed results in them stepping into your cost basis on the property rather than receiving a step up in cost basis on your death. The result is that when they sell the home after your death, they will pay capital gains on the increase in value from the value you paid for the property rather than the value on the date of death they would have received if they inherited the property.
Alternative Ways to Avoid Probate
1. Revocable Living Trust: Creating a revocable living trust allows you to transfer ownership of your property to the trust while retaining control during your lifetime. Upon your death, the property passes to your beneficiaries without going through probate. This method also offers flexibility, as you can amend or revoke the trust as your circumstances change.
2. Transfer on Death Deed: While similar to adding your children to the deed, recording a Transfer on Death deed allows property owners to name a beneficiary who will automatically inherit the property upon the record owner’s death, bypassing the probate process. The beneficiary of a Transfer on Death Deed does not have any ownership during your lifetime and the beneficiary receives a step up in cost basis.
Deciding whether to add your children to your deed involves carefully weighing the pros and cons. The potential benefits of avoiding probate must be balanced against possible financial and legal drawbacks. At Grissom Law, LLC, our experienced estate planning attorneys can help guide you to make the right decision, ensuring that your estate planning aligns with your overall goals and protects your interests. Contact us today to schedule a consultation and get personalized advice tailored to your situation.
Disclaimer
This Blog/Web Site is made available for educational purposes only as well as to give you general information and a general understanding of the law, not to provide legal advice. By using this blog site you understand that there is no attorney client relationship between you and Grissom Law, LLC.