Good Deeds


Time and again, I am often posed with a question of whether or not it is a good idea to add a child’s name to the deed of a family home. Normally, with the client’s interest first and foremost as opposed to the child’s interest, we usually advise that it is better not to add names to the deed to a home. Many clients, however, are concerned about saving their children the inconvenience and cost of estate administration. If a parent chooses to have the family home passed to a child or children upon his or her death, many parents think that it wise to add the name of a child to a deed while he or she is alive hoping to save probate costs and inheritance taxes. This decision should be made on a case by case issue.

Issues, such are these, need to be decided on a case by case issue where the pros and the cons are carefully weighed particularly to the client’s issues. One of the issues that client’s should think about are:

1. Control. This is the paramount consideration when considering this type of issue. Once a person’s name is on a deed, that person’s consent must be obtained before doing anything with the property. For example, if a person thinks he or she may want to sell the house for whatever reason, that person will need to have the child’s consent before that house can be sold. If the child is married, the signature of the child’s spouse on the deed before selling may be necessary or else it would be impossible to obtain title insurance.

2. Consider tax consequences. Federal estate taxes cannot be avoided between non-spouses. Therefore, if the property is valuable enough to be taxed, the tax is unavoidable just by adding the name of a child to the deed. If the property is not of such a high value, there would not be any federal estate taxes anyway.

To add a child’s name to a deed may have potential gift tax consequences depending on the value of the property. It should be noted, however, that it may still be necessary to file a gift tax return even if there is no actual gift tax due because of the combined of the gift/estate tax exclusion.

Also consider that if the child should die first, the client may have to pay estate taxes.

The child should also consider any type of tax issues that may arise. Commonly, to avoid estate taxes, a client may forget the matter of capital gains taxes that the child may have to pay when he or she sells the property. If the property is received as a gift, there is no “stepped up basis” as there is in inheritance. Consequently, if the property value when sold is higher than the basis of the parent donor, the child would have to pay tax on the gain which might well exceed the inheritance tax and probate cost.

3. Do not forget to consider loss of benefits. If the client is eligible for state property tax rebates, a transfer of all or part of the property, even though they remain in possession and pay all expenses themselves, may waive the right to a tax rebate in proportion to the interest transferred.

4. Lastly, consider Medicaid eligibility. When applying for Medicaid long-term care benefits, gift transfers that are made within the last 36 months will be scrutinized and may delay eligibility. Certain regulations allow an applicant to rebut the presumption that a transfer of assets for less than fair market value was for purposes other than avoidance of Medicaid eligibility; however, it can be a difficult and time consuming problem, perhaps requiring administrative hearings.

Therefore, when thinking of adding another name to a deed, careful considerations should be made.