Let’s say you’re getting older. (We all are, right?) And you’re concerned about passing on your home to your children.
Should you put your children’s names on the deed to your home?
Many people add their children’s names on their bank accounts, especially as they get older, so that their children can help them pay their bills and manage their finances if it becomes too difficult to do.
And some people add their children’s names to the deed to the family home as a type of “do-it-yourself” estate planning technique.
Bad idea.
Bad idea to try to do your estate planning yourself, and bad idea to add your children’s names on the deed to your home.
The Complications Are Many
Putting the names of your children on the deed to your home can lead to any number of negative consequences — two of which we will discuss in more detail below.
Many times people add their children’s names to the deed to the family home as a way of avoiding probate or as a means of preventing the family home from being sold to pay for nursing home expenses. But this can lead to unfortunate consequences.
First, understand that when you put your children’s names on the deed to your home you are giving them an interest in your real property. They now become co-owners with you in your home. This means that they, like you, have the legal right to sell, devise, or encumber (take out a loan) their interest in your home. It also means that if you want to sell your home, you will need to get your children, as co-owners, to agree to the sale.
Now think about this. What if the child whose name you put on the deed to your home is married? He (or she) can give, sell, or bequeath his share in your home to his spouse. Want that?
Or, what happens if your married child divorces? Because Florida is an equitable distribution state, if your child acquired title to the home during the marriage, the co-ownership interest in your home will be marital property subject to equitable division by the family law courts. In other words, your daughter-in-law or son-in-law could be awarded half of your child’s interest in your home as part of the divorce. Now think about this: almost half (50%) of all marriages end in divorce.
Another way you could end up co-owning your home with your daughter-in-law or son-in-law or a complete stranger – is if your child whose name is on the deed dies and they leave their interest to their spouse or a friend.
Putting the names of your children on the deed to your home can also lead to tax complications. Briefly, when you put your child’s name on your deed, for tax purposes, they will be considered to have acquired their portion of the home at the same price you paid for the house. If at the time of your death your child sells the home, he or she will have to pay capital gains tax on the part of the home they acquired before your death. Depending on how much equity you have in your home, the capital gains tax consequences for your child could be considerable. In contrast, if your child does not inherit his/her portion of the home until after your death, they take the home based on the date of death value, which in almost all cases is going to be far closer to the current market value than what you originally paid for the home. Then, when they go to sell it, there will be no capital gains tax.
These are just some of the negative consequences of putting the names of your children on the deed to your home. There are others.
Here are 2 Additional Reasons Why You Should Not Put Your Children’s Names on the Deed to Your Home
Creditor’s Claims
As noted above, when you put your children’s names on the deed to your home, you are giving them a legal interest in your home. That comes with responsibilities and privileges. One of the privileges that we mentioned above is the fact that your child now has the legal right to encumber his/her interest. That means he can take out a loan and use his interest in your home as collateral.
It also means that if your children have unpaid debts, their creditors can use your home as a means of collecting on the debt. Your child may have credit card debt, unpaid loans, or may have liability from lawsuits or accidents. The point here is that if their name is on the deed to your home, you may end up paying for these debts with your home. Creditors can put a lien against your house which will prevent you from selling or refinancing your home until that lien is paid off.
Medicaid’s Look-Back
One reason why older people add their children’s names to the deed on the family home is because they believe it will prevent Medicaid from taking the home in order to pay for nursing care. They think that by getting title to the home out of their names, Medicaid won’t know that they have a house that could be used to pay for their care.
But this is an ill-advised approach to providing for long-term health care.
Medicaid has a 5-year “look back” procedure. This procedure, which is part of the Social Security Code, is used by the government to ascertain whether an individual has the resources available to pay for his/her long-term care. Medicaid looks back 5 years before you apply for benefits to see whether you gave away assets like money or your home which could have been used to pay for your care. If they find that you did do this, you may end up paying penalties or losing your benefits.
There are proper ways to structure your assets which do not involve putting your children’s names on your deed and do not violate Medicaid’s 5-year look back rule. To learn more about this, contact us.
Whatever your estate planning needs are, it is always a good idea to consult with an experienced probate lawyer before you do anything to get the help and advice you need.
Trusts & Estates Lawyer in Florida
At SJF Law Group, we expertly guide individuals through the complex probate process, and capably handle all aspects of the creation, administration, and settlement of estates and trusts. We work hard to ensure that your wishes will be followed, and your loved ones taken care of when you are gone. When you work with the estate planning attorneys at SJF Law Group, you get more than just an estate plan: you get peace of mind. Contact us here or email us at: [emailprotected].
