Home Sweet Home

It is a common misconception that adding a child to the deed for your home, thereby making that child a co-owner with you, is a good idea. After all, your home would then avoid probate at your death, right? Yes, true, but the many reasons NOT to make a child your co-owner far outweigh the single benefit of avoiding probate. Here is a sampling of what could happen if you add a child to your deed:

• If your child survives you, the child will not receive a step-up in basis on the home. The loss of the step-up could cost your child tens of thousands of dollars (or more!) in capital gains tax if the child were to sell the home after your death.
• If your child predeceases you, then your probate avoidance plan goes up in smoke.
• If your child gets divorced, is sued, or fails to pay income taxes, then your home is vulnerable to the claims of the child’s ex-spouse or creditors.
• If you want to sell your home, your child could refuse to allow it or could insist on receiving half the proceeds from the sale.
• If you have a falling out with your child, you are powerless to take the child’s name off the deed.

There are other ways of avoiding probate of your home at your death. The most common and best way is to establish a revocable living trust and transfer your home to your trust. The transfer can be effective either immediately or upon your death. Your home would then be distributed or sold following your death as instructed in your trust.

If your trust leaves your home to your child, then your child would receive a step-up in basis, which would reduce or possibly even eliminate capital gains tax if he or she later sells the home. In the meantime, if you want to sell or otherwise dispose of your home while you are living, you do not need your child’s consent to do so.

Questions? You can reach the Wright Beamer estate planning attorneys at 248.477.6300.