โIโm thinking about adding my daughter to the deed. That way, sheโll own the house with me, and everything will be easier when Iโm gone.โ
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 isnโt 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 Estate Planning Law Center, we help families look beyond what may seem like a simple solution and consider how a decision involving one asset can affect the rest of an estate plan.
Adding a Name to the Deed Means Changing Ownership
When you add your child as a joint owner of your home, you arenโt 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 didnโt have before. You may no longer have complete control over the property, and selling, refinancing, or otherwise dealing with the home could require your childโs 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.
At Estate Planning Law Center, one of the first questions we consider is what you are actually trying to accomplish. Once the goal is clear, the appropriate legal tool may be very different from simply adding someoneโs name to an asset.
Medicaid and Long-Term Care Planning Can Complicate the Decision
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 doesnโt 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.
At Estate Planning Law Center, we help families consider how decisions they make today may interact with future long-term care needs, asset protection concerns, and the rest of their estate plan.
Your Childโs Financial Circumstances Can Become Relevant
Thereโs another issue parents donโt always consider: Once your child has an ownership interest, your childโs 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.
Estate planning is not only about deciding who eventually receives an asset. It is also about considering what could happen between now and then.
That is why Estate Planning Law Center helps families look at the entire pictureโincluding family relationships, potential creditor issues, long-term care concerns, asset ownership, and the way property is ultimately intended to pass to the next generation.
There May Be Tax Consequences
If the reasons above arenโt enough, there are also potential tax consequences for your child.
The concept of cost basis plays a factor here.
Cost basis is generally the amount you paid for your home. When the home is later sold, any increase in value may be subject to capital gains tax, putting aside applicable exclusions and other exceptions.
If you put your child on a deed prior to your death, the way the ownership interest is transferred can affect the tax basis associated with that interest.
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, the difference between receiving property during your lifetime and inheriting it after your death can significantly affect the amount of capital gain recognized when the property is eventually sold.
The important point is that changing a deed can create consequences that extend far beyond simply deciding who should receive the house.
There May Be Better Ways to Accomplish Your Goal
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.
At Estate Planning Law Center, our planning process begins by identifying what you are trying to accomplish and then considering how your home, other assets, family circumstances, long-term care concerns, and existing estate planning documents fit together.
Putting your childโs name on the deed may take only a few minutes. Undoing the consequences can be much more complicated.
Before changing ownership of your home, take the time to understand what the change actually means, not just what you hope it will accomplish.
Contact Estate Planning Law Center today to register for an upcoming workshop or schedule your initial planning meeting. Weโll help you review your goals, property, family circumstances, long-term care concerns, and existing estate plan and determine which planning strategies may be appropriate before you make a change that could be difficult to undo.
