As children get older it sometimes becomes enticing for parents to have their now adult child joint on their home property. There are many reasons for parents to use this strategy because under the right situation, the home can automatically be transferred upon both parentsâ€™ death.
For some, this approach tends to be used to substitute for actual estate planning, as it does avoid probate. However, creating joint ownership should never be the solution to drafting an actual estate plan. Moreover, unfortunately, joint home ownership can also create some unexpected and unintended consequences that could easily be avoided if planned properly ahead of time.
Some of the unexpected consequences include:
1. Loss of Control: After putting your child joint on the home, many parents fail to realize that the level of control they possessed before no longer remains. For example, parents can no longer sell or mortgage their property without their childâ€™s approval.
a. Capital Gains: One of the advantages of having the home pass to your children upon your death is that the property transferred receives a stepped-up basis equal to its current market value. However, by placing the childâ€™s name on the property during your life, you are forcing the child to lose that stepped-up basis and possibly paying capital gains on the entire value.
b. Gift: Placing your childâ€™s name on your home property could also be seen as a taxable gift for a portion of the home value. This can also trigger a gift tax liability or use a portion of your lifetime gift tax exemption.
3. Creditors: If you add your childâ€™s name to your home property, it automatically and immediately becomes exposed to outside creditors. However, this can be avoided if proper estate planning occurs.
Without a doubt, placing your childâ€™s name as a joint holder of your home property is a much simpler way of avoiding probate. However, the actual consequences that come of it can be severe. Please seek professional advice on the best approach and strategy of transferring property to your children upon your death. In most cases, drafting a Revocable Living Trust or even a Will can achieve better results. Please consult with an Attorney prior to making any changes to the title of your home.
Adil Daudi is an Attorney at Joseph, Kroll & Yagalla, P.C., focusing primarily on Asset Protection for Physicians, Physician Contracts, Estate Planning, Shariah Estate Planning, Health Care Law, Business Litigation, and Corporate Formations. He can be contacted for any questions related to this article or other areas of law at email@example.com or (517) 381-2663.