You better think twice before putting your child’s name on your deed. I’m attorney Paul Bernstein of the Bernstein law group. Why do I say you better think twice before putting your child’s name on the deed of your house? Well, you’re probably thinking, I’ll put their name on the deed so if I pass, it’ll just go to them.

They’ll own it. No court involvement, no lawyer is needed. It’s simple and easy. That’s true… if everything goes correctly. Let me tell you a particular story where things didn’t go quite as planned.

Things don’t always go as planned

A woman put her children’s names on her deed. It seemed like a good idea at the time, so when she passed away, it would go to them.

What she didn’t anticipate was that the middle son came down with a particular illness that resulted in him being completely incapacitated. A conservatorship had to be undertaken to grant someone else the authority to sign on his behalf.

Then the mother wanted to sell the property and everyone agreed to sell it. But the 25% ownership interest of the middle child that was incapacitated, which was now controlled by the conservatorship, wasn’t going to be returned to the mother. It was going to stay for the benefit of the incapacitated son. The court required that. That was very sad and unexpected.

More unexpected consequences

If that wasn’t bad enough, mom, who was really dependent on the proceeds from the sale of the house, ended up finding out that the other sons, all three sons, in fact, we’re going to get less than she did for her percentage. Why are they getting less? Because it was her primary residence, so she got to exclude $250,000 of capital gains taxes. That’s a great benefit in the tax code for your primary residence.

But because it wasn’t the primary residence of the other three children whose names were on the deed, they didn’t get that exclusion. They had to pay capital gains on their three fourths that they received from the sale of the property.

So she didn’t get the proceeds from the middle child who was incapacitated. And she got less from the other two because they had to pay 20% capital gains tax for those funds. So ‘simple and easy’ ended up costing this particular person an awful lot of money.

A child has to file for bankruptcy

In another case, parents put a son on their deed for the same reason. The son was a successful business owner, until he wasn’t. The son’s business struggled and finally he had to declare bankruptcy. And when that happened, the bankruptcy court trustee stepped in and forced the sale of everything he owned, including his percentage of the parents’ house.

His name was on the deed. He co-owned it. So the trustee in bankruptcy was going to put it out to market to sell. That would have meant that the parents would co-own their house with a stranger. This upset them so much they had to buy back their own house from the bankruptcy court trustee.

Children going through a divorce

Other cases involve children going through a divorce. They call on the house. Now the parents’ home is part of the child’s divorce proceedings. Or a child gets sued and co-owns the house. Now the parents could lose part of the house to the child’s lawsuit creditors.

When you put your child’s name on your house deed to simply avoid probate in what you believe to be a simple and cost effective way, you have now tied your world to the problems of your children.

There are better solutions

I strongly advise clients not to add their children’s names onto what they own and invite the child’s world to come and attack their home. It’s never intentional. Things might look perfect when this is done, but life happens. And things can go awry. There are much better solutions. So once again, be careful of the perils of adding someone else’s name to your property deed.

I hope you found this information helpful. Do you have any questions or are you just not sure what to do? Feel free to reach out.

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