Attorney Thomas B. Burton answers the question: "Which is Better Add Child to Deed or do Transfer on Death Deed?" in this latest question and answer video. In this video, Attorney Burton discusses the pros and cons of adding a child to a deed during life versus using a transfer on death deed.
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Welcome back, I'm Attorney Thomas Burton. I'm an estate planning, asset protection and business law attorney here in Wisconsin and today's question in our popular question and answer series comes from La Crosse, Wisconsin, our neighbors just to the South and the writer asks the following -
"Which is better - add child to a deed or do a transfer on death deed? In Wisconsin, to minimize taxes upon death, should I add my only child to my real estate deed or should I do a transfer on death deed? What are the pros-cons of each?"
Okay, so generally, transfer on death deeds, you have the situation, I always talk about where transfer and death deed can work well, you have only one child you said and if you intend for them to inherit the entire piece of real estate, then a transfer on death deed could be a good solution for you. Where I see them causing problems is when it leaves property to joint owners, multiple children who then have to come to consensus and all sign the deed to sell the property. Joint ownership of real estate often gets very messy, fast but if you have only one child, I would look at using the transfer and death deed and if your concern is about minimizing taxes upon death, then the best option in my opinion is to pass it to the child at death, so they get new bases in the property at death for capital gains tax purposes. Now you didn't mention what type of real estate, if it's your home or if it's an asset you plan for them to hold on to but if it's an asset like your home that you think they will sell and turn into cash, then what's important is if you leave it to your child at death, they can get the property appraised as of your date of death and whatever the value is on that date of death, they can turn around and sell it for it and owe no long-term capital, no capital gains tax. Whereas your basis in the property is whatever you bought it at in whatever year you bought it, plus any improvement. So let's say you bought the home in 1980 for a $100,000 and now in 2021, it's worth $300,000. If you add your child to the deed today, they take your basis in the property meaning that $100,000 from 1980 but if you leave it to them at death, they can get new basis at death which would be $200,000, at a 15% capital gains tax rate, could be a $30,000 capital gains tax bill. That's the power of leaving property at death to people, under the current tax law. Now the good news is Wisconsin doesn't have a separate estate tax and it's tied to the federal tax which is currently over 11 million dollars per person. So if you are below that 11 million which the vast majority of Wisconsinites are, then you need to think about some of these other taxes like capital gains tax.
Real estate is often an asset that goes up over time and makes sense to be something you pass. I always say look at passing highly appreciated property at death to take advantage of that new basis at death.
So I would consult with an attorney about, more about the specifics of your situation but based upon your brief question here, I would look at using that transfer on death deed to leave it to the child upon death.
The other reason I wouldn't recommend doing it via deed during life is if you add them to the deed now, you can inadvertently expose your home or property the creditor claims of your child. It doesn't even mean your child is bad with money, let's just say they get in a car accident and people start suing them. Suddenly they're on the title to your home and that becomes an asset that creditors could go after in a lawsuit. So it's better to leave it at death, when you're no longer needing to use or live in the home then title transfers to your child.
In addition, if you transferred it to the child during life via deed, it would be a gift and my guess is the property is worth more than $15,000 which is the limit in 2021 on the amount you can give to someone in a year without filing a gift tax return, what we call the annual exclusion. So if you did it by deed during life, you would need to file a gift tax return to let the IRS know about this as well.
So I think you're on the right track with the transfer on death deed. I would sit down with your attorney, lay out the entire situation, make sure there's nothing missing from this brief question you ask here and then proceed with getting that deed drafted by the attorney and recorded because remember, a transfer on death deed only is effective if it's recorded with the register of deeds office in the county where the property is located. You're in La Crosse, so I'm assuming that's La Crosse county but the property could be in another county, I'm not sure but just be aware you need to get it recorded in order for it to be effective.
So great question, thank you for asking because I feel this is an illustrative question for other people watching and if you're watching and this video has been helpful to you, please consider giving it a like, so that more people can find and benefit from this information as well.
Thanks again for watching and we'll see you next time.
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