As parents plan for the future, many consider adding their children to the title of their home as a simple way to pass down property and avoid probate. While this strategy may seem convenient, it carries serious legal and financial risks that can create complications for both you and your children. Before making any changes to your deed, it’s important to understand the full impact of joint ownership in the context of estate planning.
The Appeal of Adding Children to Title
Adding a child to your home’s title is often seen as a shortcut to avoid probate. When you pass away, your child (as a joint tenant) automatically becomes the full owner of the property without the need for court involvement. This concept—known as the “right of survivorship”—can sound like a practical, cost-saving solution.
However, what seems like a simple fix can lead to unintended consequences that outweigh the benefits.
Risks and Consequences
- Loss of Control: Once your child is added as a co-owner, you no longer have full control over the property. Any sale, refinance, or transfer generally requires their consent.
- Exposure to Your Child’s Liabilities: If your child goes through a divorce, bankruptcy, or is sued, their share of the home could be subject to claims by creditors or former spouses.
- Tax Implications: Adding a child to your title may be considered a gift by the IRS, potentially triggering gift tax reporting requirements. More importantly, it could eliminate the step-up in basis your child would otherwise receive if they inherited the home through your estate, resulting in significant capital gains taxes if they sell the property.
- Unintended Disinheritance: If you add only one child to the title, that child will become the full legal owner of the property at your death—regardless of your intentions to divide your estate equally. This can cause disputes among siblings and may not align with your broader estate plan.
Alternatives to Consider
Instead of adding your children to your home title, consider these estate planning tools:
- Revocable Living Trust: You can place your home in a trust, retain full control during your lifetime, and ensure it passes to your beneficiaries without going through probate.
- Transfer on Death (TOD) Deed: Available in California, this option allows your home to transfer to a named beneficiary upon your death, bypassing probate while keeping the property in your sole name during life.
To learn more about common mistakes in estate planning, read our blog on 5 Mistakes to Avoid When Updating Your Estate Plan.
Talk to an Attorney Before You Sign Anything
While it may seem helpful to add your children to your home title now, the long-term consequences can be serious. The good news is that there are safer, more flexible ways to achieve your goals without giving up control or creating tax headaches.
For personalized advice about transferring property or protecting your estate, contact the attorneys at Lowthorp, Richards, McMillan, Miller & Templeman. Call (805) 981-8555 or fill out our online contact form. We proudly serve Ventura, Santa Barbara, and San Luis Obispo Counties.