For many parents, ensuring their child inherits the family home is a top priority. The idea of adding an adult child to the deed might seem like a straightforward way to accomplish this goal while avoiding probate. However, while this approach may seem simple, it carries significant legal, financial, and tax consequences that can create more problems than solutions. Before making any changes to your property title, it’s essential to understand the risks and explore alternative estate planning tools that better protect your interests.

Potential Risks of Adding Your Child to the Deed

• Loss of Full Control: Once your child is on the deed, they become a co-owner, which means any decisions regarding the property—such as selling, refinancing, or making substantial modifications—will require their consent. This shared ownership can lead to complications, especially if disagreements arise.
• Exposure to Your Child’s Liabilities: As a co-owner, your child’s financial issues could affect your property. For instance, if they incur significant debt or face legal judgments, creditors might place liens on the property or even force a sale to satisfy those debts.
• Tax Consequences: Transferring an interest in your property to your child can be considered a taxable gift. If the value exceeds the annual gift tax exclusion limit, you may need to file a gift tax return, potentially impacting your lifetime gift tax exemption. Additionally, your child may face capital gains taxes based on the property’s original purchase price if they decide to sell in the future.
• Medicaid Eligibility Issues: If you anticipate needing Medicaid assistance for long-term care, transferring property to your child could be viewed as a disqualifying transfer, affecting your eligibility. Medicaid has a “look-back” period that scrutinizes asset transfers made prior to the application, and such actions could lead to penalties or delays in receiving benefits.

Alternative Strategies to Consider

Instead of adding your child to the deed, explore other estate planning tools that can achieve your objectives without the associated risks:

• Revocable Living Trust: By placing your property into a revocable living trust, you retain control during your lifetime and designate your child as the beneficiary upon your passing. This approach allows the property to transfer without going through probate and avoids many of the pitfalls associated with joint ownership.
• Transfer on Death (TOD) Deed: Also known as a beneficiary deed, a TOD deed allows you to name your child as the beneficiary who will automatically inherit the property upon your death. Until then, you maintain full ownership and control, and the transfer bypasses probate. It’s essential to verify if this option is available in your state, as not all jurisdictions recognize TOD deeds.

Before making any decisions, it’s crucial to consult with an experienced estate planning attorney. They can provide personalized advice tailored to your situation, ensuring that your estate planning goals are met while minimizing potential risks and complications.

In summary, while adding your adult child to your home’s deed might offer a seemingly simple solution for estate planning, the potential drawbacks often outweigh the benefits. Exploring alternative strategies can provide a more secure and effective means of achieving your objectives.