Adding a child to your home deed can trigger unintended consequences.

People tend to choose the easiest option at the moment.

Sometimes, selecting this option is harmless, like grabbing the first shirt in your dresser drawer.

Other times, it can be the best option for you, like hiring a plumber to fix the sink rather than spending valuable time trying to solve the problem while making the issue worse.

Note to file: plumbers are really (really) expensive on weekends and holidays.

Please do not ask me how I know this.

Just trust me.

Choosing the easiest solution can also have significant negative consequences, such as not spending the energy to buckle a seatbelt.

While adding a child to a home deed may seem like a simple solution for transferring property, the action can prove costly.

Although many people believe this action is an easy way of avoiding probate, they often do not understand what this action means.

Exploring alternative estate planning strategies for adding a child to a home deed is wise.

What Does Adding a Child to a Home Deed Mean?

Adding a child to a home or other property deed transfers partial ownership rights to this adult child.

This legal action can both reduce your control of the asset and open it up for risks related to co-ownership.

What are the legal implications of co-ownership?

Although probate can legally be bypassed for this asset because the name of an heir is directly included on the deed to simplify estate administration after your death, it can trigger complications while you are still alive.

Because your adult child will have equal rights to the property as you do, all owners must agree when decisions must be made about the property.

This leads many to question whether avoiding probate is worth the risks.

Probate can be a long and expensive process if the estates are large, complicated, or disorganized.

People must evaluate the likelihood of their risks and rewards.

While many people find avoiding probate appealing, it is not always the best decision for each individual.

Some may find a last will and testament sufficient for providing clear direction to the probate courts and executors so the payment of debts and the distribution of assets will be straightforward and efficient.

Bypassing probate can introduce unnecessary legal and financial complexities into estate planning and administration.

What are some of these specific legal and financial issues created by adding a child to a deed?

Gift Taxes can be Triggered.

The IRS allows gifts to be made up to a certain exclusion amount each year without using some of your lifetime federal gift and estate tax exclusion.

If the property you deed to your child exceeds the annual exclusion limit, you create a taxable event.

What are the gift tax rules?

Those who make gifts exceeding the annual exemption amount must file a Form 709 Gift Tax Return.

That current annual gift exclusion limit is $18,000 for 2024.

As a result, you may find a significant and unanticipated tax bill.

Complete Control of the Property can be Forfeited.

When you are the sole owner of assets, you have complete control of what will happen.

If you name a co-owner, this individual retains rights over the property with an equal voice in decision-making.

This creates an extra level of complexity to refinancing or selling a home.

If your adult child has personal financial issues or legal liabilities, the property could be subject to claims from creditors, lawsuits, or divorce.

Capital Gains Taxes could be High.

When property or assets have increased their value, a tax is often levied at the sale based on their appreciation.

When a property is inherited, it receives a step-up in basis.

This means the property value will be reassessed based on its value as of the owner's date of death.

As a result, the capital gains tax owed if the property is sold will be calculated based on the difference between the current value and the value when the decedent died rather than when the property was originally purchased.

By adding a child to a home deed, the step-up in basis will not apply, and your child could owe a larger capital gains tax bill.

In addition to logistical and tax considerations, family dynamics should be evaluated before sharing a deed with an adult child.

What relational complications could arise?

If you name one child on the deed to your house but not the others, you could be perceived as showing favoritism.

Your other children may even suspect undue influence and legally challenge your estate plan in court.

Yikes!

Before adding a child to your house deed, you should ponder how this will affect the rest of the family.

Sometimes, equal asset distribution is wise to preserve family relationships.

What are Alternatives to Adding a Child to the Deed of a House?

Another option for those seeking to avoid probate is to create a living trust and title the home to the trust.

What does this accomplish?

With a living trust, you can retain control of the property while you are alive and provide a smooth transfer for the asset after you die.

If that is too complex, then a transfer on death deed (i.e., known as a "transfer on death deed" in Kansas and a "beneficiary deed" in Missouri) may be just the "E-Ticket" for your unique circumstances and objectives.

Both of these alternatives afford the efficiency and privacy of probate avoidance without the risks of adding another owner to the deed.

Although many people prefer to add another name to their deed and file it with the Register of Deeds in Johnson County or another county in Kansas or Missouri to manage their estate planning on their own, these individuals would benefit from working with an experienced estate planning attorney.

Why work with a professional?

Estate planning is complex, and seemingly simple actions like adding a child to a home deed can trigger significant tax and legal issues.

An experienced estate planning attorney brings practical knowledge and understanding of the law to help you design a plan to address your specific goals and circumstances.

A plan tailored to you can help protect your property and your people.

The seemingly simple solution of adding owners to a home deed may lead to long-term and long-lasting complications.

These include gift tax implications, reduced property control, heightened capital gains taxes, and potential family conflicts.

Ultimately, you should work with an experienced estate planning attorney to understand better alternatives and to create a personalized plan for your home and the rest of your belongings.

This post is for informational purposes only and does not provide legal advice. You should contact an attorney for advice concerning any particular issue or problem. Nothing herein creates an attorney-client relationship between the Law Offices of Kyle E. Krull, P.A., and the reader.