The Estate Planning Consequences of Adding an Adult Child to Your Deed

“I’m thinking about adding my daughter to the deed. That way, she’ll own the house with me, and everything will be easier when I’m gone.”

It sounds reasonable. It may even sound like good planning. After all, if your child is already going to inherit your home, why not simply put their name on it now?

The problem is that adding an adult child to the deed isn’t just an estate planning decision. It is a change in ownership that can have consequences during your lifetime, at your death, and for your child.

At The Lansky Law Firm, we help families look beyond the immediate convenience of an estate planning decision and consider how it may affect their long-term goals.

When you add your child as a joint owner of your home, you aren’t simply giving them permission to help manage the property. Depending on how the deed is structured and applicable law, you may be giving your child a present ownership interest in the property.

That means your child may acquire rights that they didn’t have before. You may no longer have complete control over the property, and selling, refinancing, or otherwise dealing with the home could require your child’s involvement.

There is also an important distinction between giving someone authority to act for you and giving someone ownership. If what you really want is for your child to help you manage your affairs, a Power of Attorney may accomplish that goal without changing ownership of your home.

When Medicaid is in the picture, this is where the decision can become particularly important for older adults. Medicaid planning is highly dependent on the circumstances and applicable laws, but transferring an ownership interest in a home can potentially be treated as a transfer of assets.

That doesn’t mean adding a child to your deed automatically makes you ineligible for Medicaid. It does mean that the transaction should not be treated as a harmless paperwork change, particularly if long-term care may become an issue. Timing, the type of ownership interest transferred, the reason for the transfer, the value involved, and applicable exceptions can all matter.

There’s another issue parents don’t always consider: Once your child has an ownership interest, your child’s circumstances may matter. What happens if your child gets divorced? What if your child is sued? What if your child files bankruptcy?

An interest in real property can potentially become part of those financial and legal problems. The home that was intended to be protected for your family could suddenly be connected to liabilities you never anticipated.

If the reasons above aren’t enough, there are also potential tax consequences for your child.

The concept of cost basis plays a factor here. Cost basis is the amount you paid for your home. When you sell the home, any increase in value may be subject to capital gains tax, putting aside some exceptions. However, if you put your child on a deed prior to your death, this could affect the cost basis they receive and potentially result in a larger capital gains tax bill when the property is later sold.

Property inherited after death may receive a step-up in cost basis, meaning the basis generally becomes the value of the property at the date of death. Depending on the circumstances, this can significantly affect the amount of capital gains recognized when the property is eventually sold.

If your goal is to make things easier for your family, there are often other options worth considering. Depending on your circumstances, those might include a properly drafted Power of Attorney, a revocable trust, a transfer-on-death mechanism where available, or carefully structured inheritance planning.

Each option has different legal and tax consequences. There is no single solution that works for every family. The important point is to decide what you are trying to accomplish before changing the deed.

Putting your child’s name on the deed may take only a few minutes. Undoing the consequences can be much more complicated. Before changing ownership of your home, talk with an estate planning attorney about what the change actually means, not just what you hope it will accomplish.

At The Lansky Law Firm, we take the time to understand what you are trying to accomplish before recommending changes to your estate plan or the ownership of your property. If you are considering adding an adult child to your deed, we can help you understand how that decision may affect your control of the property, long-term care planning, taxes, and the way your assets ultimately pass to your family.

Call (901) 767-7006 or visit www.lanskylawfirm.com to schedule a consultation.

The Lansky Law Firm 6800 Poplar Avenue, Suite 225 Memphis, TN 38138