Should I Allow My Dad to Add Me to the Deed of Our Family Home?

Attorney Thomas B. Burton answers the following question: "Should I Allow My Dad to Add Me to the Deed of Our Family Home?".


Attorney Burton discusses the pros and cons of adding someone to the deed of your home while you are still living in the home and also suggests ways to leave the real estate to the heirs upon death that may provide a more favorable tax position for capital gains tax purposes to the heirs if the heirs plan to later sell the property.


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Hello and Welcome Back to our Popular Estate Planning Question and Answer Series. I'm Attorney Thomas Burton and today's question is the following:


"Should I allow my dad to add me to the deed of our family home? What potential liability or risk is involved? There is still a mortgage in Home Equity Loan on the home along with other debt my dad owes and my husband and I are looking at selling and buying a new home in the next few years. "


Okay, great question! I see this come up a lot, usually, on my end it's the parent thinking about adding the child to the deed and I caution them against this because it can expose the title, if you're on the title, to the creditors and debts of the child. Now in this situation, the father thinking about adding the child but the same applies, if your father has that and you're added to the title, you would become responsible for those liens against the property and the maintenance taxes, expenses and upkeep of the property as an immediate co-owner.


Now, there's two things to keep in mind, title is different from the loan. I wouldn't advise you to get added to your dad's loan, unless you really want to start paying off the mortgage. He can add you to the deed but not the loan, assuming he already has the loan. However for Real Estate, the loan is going to be secured by the title to the property. So first thing to look at is do you have equity in the property and is it worth it to you? Now for your own financing, what would likely interfere with you seeking to buy a home is if you were on his loan, then it would be harder for you to seek new financing. But in terms of having an additional asset in their name that could be good for you. Now whether this is good or not for your dad, is up to him because again, it could expose his home to your creditor claims and you and possibly your spouse, if you're married and again, if you're added as a co-owner, you're immediately liable for maintenance taxes, insurance and if your dad could no longer pay, you would need to pay.


Now the other thing to keep in mind here is, if he's gifting you something in value over $15,000, the gift tax limit in one year is $15,000 per person per year. So you would need to file a gift tax return, if he's gifting you equity in the property over that limit. It's unlikely he'd owe gift tax, if he's below 11.4 million but you would still need to file it.


In addition, if your dad wants you to get the property at death and it has significant value, currently there's the step up in basis at death, meaning, you get the asset reassessed upon the party's death, your father's death. So if you're planning to sell the home after he dies, you might be better receiving the property at death, get the new basis at death, get the property assessed at a new value then sell it, at that higher value and you could potentially pay no capital gains tax at all.


So that's one thing to keep in mind as well.


Now I don't know, if he's doing this, why he wants to add you now. If it's just a probate avoidance technique because if you want to do that, there's ways to do this with a trust, to pass it non-probate at death or you can pass it via will through probate at death but if he's doing it for Medicaid planning purposes, be aware that any transfer like this would have to be done five years ahead of the date, he needs to apply for assistance from the state and adding you as a co-owner, could cause issues if he later needs to apply for long-term care assistance. So in that instance I would also advise looking at a trust, perhaps an Irrevocable Trust, working with a qualified estate planning attorney, who could put that together for you.


I've just seen too many situations where adding adult children to the deed goes wrong and causes unintended consequences on both sides. So I'm very cautious about doing this and I wouldn't advise your father to do so and for sure, he shouldn't do so without consulting with qualified legal counsel.


So this is a great question, one I see come up often about adding other people to the deeds of real estate. It's one I am very cautious about for all the reasons previously mentioned.


So thank you for asking and we'll see you next time!


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