6 Reasons Not to Put Your Child’s Name on the Deed to your House

Instead of drafting a Will, many people just put their child’s name on the deed to their house.  Their goal is to make things easier for their child by eliminating the need to go through probate.  If the house is the only asset, this can be an effective way to avoid probate.  (If there are other assets besides the house which they still own in their sole name – their child will still have to go through probate.)  In Maryland, though, probate is not a particularly daunting or expensive procedure.  In my opinion, the disadvantages of putting your child’s name on the deed far outweigh the advantage of avoiding probate.

1.  Loss of Control

When your child’s name goes on the deed, your child becomes the legal co-owner of the house.  Should you at some point want to sell the house and move to Florida, your child must agree.  If they don’t agree, you cannot sell.  No Del Boca Vista for you!

2.  Inheritance by Others

If your child dies before you, depending on the way the deed is worded, your child’s ownership interest in the house could pass to their heirs.  You could end up owning the house with your son-in-law.  Definitely no Del Boca Vista for you!

3.  Exposure to Creditors

Because your child is now a joint owner of your house, your house is also your child’s asset.  Your house is now exposed to your child’s creditors.  If your child runs into tax problems, a tax lien could be filed against your house.  If your child declares bankruptcy, your house may have to be sold.  If your child is sued as a result of a motor vehicle accident, your house could be attached.

4.  Taxable Gift

Putting your child’s name on the deed may seem like a simple transaction, but it is legally a gift of half the value of your house.  If your house is worth more than $26,000, a federal gift tax return is required to be filed.

5.  Capital Gains Tax

When you put your child’s name on the deed, the child is considered to have acquired their half of the house at half of the same price you paid for the house.  Let’s say that the house you paid $100,000 for 30 years ago is now worth $500,000. (Now that’s wishful thinking!)  Your child now owns half the house and is considered to have acquired it for $50,000.  After you die, if your child sells the house for $500,000, the child will have to pay capital gains tax on the half of the house they acquired before you died.  In this scenario your child would owe capital gains tax on $200,000.  (This assumes the house is not your child’s primary residence.)

Conversely, when your child inherits the house after your death, they take the property at your date of death value.  Even though you only paid $100,000 for your $500,000 house, your child is considered to have acquired the property for $500,000.  Thus, if your child then sells the property for $500,000, there is no capital gains tax.

6.  Medicaid Penalty

Medicaid is a quasi state/federal program that will pay for nursing home care for individuals without sufficient resources.  In the application process, Medicaid looks for whether the individual has given money away in an attempt to become eligible for benefits.  Putting your child’s name on your deed is considered a gift and as such may trigger a period of ineligibility for Medicaid benefits.

David Galinis
Managing Partner – Estates and Social Security Practice
Berman, Sobin, Gross, Feldman & Darby, LLP
481 N Frederick Avenue, Suite 300
Gaithersburg, MD 20877
301-670-7030
dgalinis@bsgfdlaw.com
www.BSGFDlaw.com
This entry was posted in Probate, Wills and tagged , , , , , , , , , , . Bookmark the permalink.

19 Responses to 6 Reasons Not to Put Your Child’s Name on the Deed to your House

  1. Maria Theesen says:

    Michael: Look at the pit falls if I deed the house to you. I’m going to check with William Hoag at Newamerica funding and see if there is a way to refinance and put in your name.

  2. mary says:

    My mother has my sister and myself on the deed to her town house. She is selling it and moving into a an apartment. We signed off on the P&S so she could sell it. Now it seems there is a question on whether we would be hit on taxes after it is sold because we are on the deed. She is waiting to hear if we need to be removed from the deed. Any advice?

    • dgalinis says:

      Dear Mary,

      Thank you for your comment. You and your sister may have to pay capital gains tax. I assume that you and your sister are not living in the house. Therefore, any gain (selling price greater than your mother’s original purchase price) will be a capital gain to you and your sister. I also believe that your mother may also be subject to tax because the exclusion for principal residence may not apply because you and your sister are also on the deed. Thus, I agree that you should consider removing your and your sister’s name from the deed.

      This is a good illustration of a 7th reason not to put your child’s name on the deed to your house.

      D

  3. Paul says:

    My grandfather and grandmother bought a house in the 1960′s and put all 5 of their children on the deed, 7 people all together. My grandfather has passed and my grandmother still lives there. 3 of the children currently live there and another plans on moving back in after retirement.

    If that was their primary house of residence for the past 5 years & they sold it at a later date, would they have to pay capital gains on it?

    • dgalinis says:

      Dear Paul,

      Thank you for your comment. The owners who have lived in the house for the past 5 years can claim an exclusion of the first $250,000.00 of capital gain. The owners who do not live in the house are subject to taxes on their capital gain.

      David

  4. adolly says:

    Should i make a trust for my property in order to avoid probate? If so, how do I do that?

    • dgalinis says:

      Thank you for your comment. A revocable living trust, drafted and funded properly, can avoid probate. You would need to consult with an estate planning attorney in your state. If you live in Maryland, feel free to contact me.

      As to whether your primary estate planning goal should be to avoid probate is another matter. In Maryland, the probate process is not something to be avoided at all costs as it may be in other states. As a result, it is rare that I recommend this type of trust in my practice as it is more expensive and complicated on the front end.

      David

  5. Kathy says:

    My mom had changed her deed in the name of us 5 children, advised by her attorney to save inheritance tax? Not sure why, but now she has moved to a senior apartment complex and we want to sell the house and give the money back to her for her expenses. How can we avoid income tax for the 5 of us? Can we or should we put the deed back in her name before we sell?

    • dgalinis says:

      Dear Kathy,

      Thank you for your comment and I apologize about the late response. If you sell the house for more than your mother originally paid for it, you and your siblings will pay capital gains tax. If you put the house back in your mother’s name, you are required to file a federal gift tax return if each share of the house is worth more than $14,000. As there may be other issues involved (e.g., Medicaid eligibility), I would consult with your attorney before proceeding. If you no longer have counsel and live in Maryland, you could certainly contact us.

      David

  6. kimyen says:

    My New Jersey property was given from my ex after divorce and it is my only real estate and mortgage was paid off . I have been living with no job since hurricane Sandy and in desperate financial hardship with the the huge hospital debt and many potential liens on my property, so I want to prepare to avoid losing my property in the near future.
    Therefore I want to add to my deed my minor child 10 years-old with 1% of the value of my property during her joining ownership with me and 99% of the value of my property for my daughter at any time of closing sell of the property and 100% at my death. The decision of selling the property remain on my decision at all time before my dead.
    Please help me for these questions below as soon as possible that I could have enough time to avoid the liens from creditors.

    1. Can I use “Lady Bird Deed” or Quit Claim Deed in this case ?
    2. Can my “minor” children be added on the deed ? Is it legal according to NJ law?
    2. Is there any “TAX PROBLEM” for doing so in the long run ? Any downside for that strategy?
    3. If after my daughter on the deed, there was any lien to the property due to the hospital cost, could I avoid that lien with only 1% of the property (value $234,000 property tax value) and could save the house for my children ?
    4. Can I be a guardian for them in case I sell the property while she is still a minor? If not then how can I sell without their consent ? Can my ex be her guardian in this case (he is primary custody after divorced as I could not afford for my children’s
    living ?
    5. If later I wanted to reverse to take off her name of the deed for easier to sell the property, is it possible or illegal to do so ?

    Thank you so much in advance for any help could be made ! I appreciate your help with all respect !
    Sincerely yours.

    • dgalinis says:

      Thank you for your comment and I apologize for the delayed response. Unfortunately, I am not licensed to practice law in New Jersey (only Maryland, Virginia and the District of Columbia). You need to consult with an attorney in New Jersey.

      David

  7. Kellie Pagan says:

    Dear Mr. Galinis:

    My father wants to make a gift of $250K to my husband and I so that we can buy our first home. He’s then going to loan us approximately $300K for the rest of the purchase, with the mortgage being signed at closing. My father’s name will not go on the deed, and my husband and I file a joint income tax return.

    My question is: are my husband and I going to be liable to report the $250K gift as income?

  8. Please Help says:

    Hello David, I hope this blog is still active. I have a question that I have googled about a 10000 different ways but can’t find the anwser. A friends mother passed away and split all her assets equally in the will between all children… But one of the children is not on the deed to the house. (We are not sure why)… Does the will override the deed? Is this non included child entitled to any of the house?

    • dgalinis says:

      Thank you for your comment. The Will does not “override” the deed. The Will governs what happens to property owned by your friend’s mother solely or as tenants-in-common. So, if your friend’s mother owned the house in her sole name, the Will would govern what happens to the property. The Will would also control what happens to your friend’s mother’s share of the property if she owned it as tenants-in-common with other people. This is rare. The more common form of joint ownership is called joint tenancy or joint tenants with right of survivorship. If your friend’s mother owned the house with some of her children as joint tenants , then the Will has no bearing on the house as the joint tenants become the rightful owners immediately at your friend’s mother’s death. The Will would have no effect.

      David

      • Please Help says:

        So happy you responded. Unfortunately, That is what I thought regarding the will/deed….I knew (but hoped I was wrong) that the will would triumph. In recent developments it has been found that “supposedly” one sibling (evil, clearly) manipulated a grieving mother into excluding said sibling from house when father passed. Does this believed manipulation have any standing in court? (there are family members who the mother opened up to about her financial/fraud worries before passing due to executor)…in addition, there is suspected theft from legal guardian/executor (my friend is considering a forensic accountant).

        All in all, is he (for lack of better terms) screwed? Should he cut his losses and cease attempt to concur?

        • dgalinis says:

          If your friend resides in Maryland, he or she could potentially bring an action asserting that the sibling exerted “undue influence.” However, these types of cases are often difficult to prove. I don’t have enough information to give legal advice on your friend’s situation. I suggest your friend contact legal counsel in the state he or she resides.

          David

  9. Louis says:

    I have a question, about my home in queens NY my mom is 85 and i’m 55 and we both own our own homes, but I was looking to put my name on here deed with her. I’m the one who been doing all work needed as I’m the one who been maintaining it for a long time. my dad and her purchased the house for $1500 back 50 years ago. The house is worth about $300,000 and we both are on star for lower property tax to our incomes being below the star requirerments. Is there a beter way of doing this? I was told I should put both homes into a corparation under a new names as we are both the holders of the corp. thanks Louis

    • Jeff Gordon says:

      Louis,

      I want to thank you for your comment on the blog article “6 Reasons Not to Put Your Child’s Name on the Deed to your House.” My name is Jeff Gordon, and I am an associate attorney with Berman, Sobin, Gross, Feldman & Darby LLP with offices in Maryland, the District of Columbia and Virginia. Please understand I am not a licensed attorney in the state of New York and you should not rely on this response as legal advice. I recommend you speak with local counsel in New York before taking any action regarding this unique issue you have presented.

      Before doing anything, you and your mother should sit down and determine what are each of you really trying to do with the properties? Are you looking to avoid probate? Are you trying to minimize current tax liability? Future tax liability? Once you and your mother both have an understanding of what it is you want to achieve, then I recommend each of you sit down with a local attorney to decide on the best option for planning for the disposition of the property and the consequences that may result.

      Please take a second look at Section 3 (Exposure to Creditors) and Section 5 (Capital Gains Tax) of the blog in which you responded.
      By becoming a joint owner of the property, you expose your mother’s property to any of your creditors. Additionally, by having your name added to the Deed, your basis in the property will be the same as your mothers at the initial purchase ($1500), thereby making you liable for a substantial capital gains tax if the property is ever sold.

      If you and your mother decide to contribute your respective properties into a corporation, I am concerned that the transfer might disqualify you from the STAR program for failure to meet the eligibility requirements. Take a look at The New York State Department of Taxation and Finance STAR webpage located at http://www.tax.ny.gov/pit/property/star/eligibility.htm. The website provides some helpful information regarding the STAR program to help you and your mother avoid taking any action that may cause you to lose the right to the exemption.

      Proper planning can minimize costs without affecting the STAR Program exemption statuses of you and your mother.

      Thank you again for your question.

      Jeffrey K .Gordon, Esq.
      jgordon@bsgfdlaw.com

Leave a Reply