What should I consider before adding my adult child to my home title?

By Lindsay O’Reilly

Two of life’s inevitabilities, death and taxes, become central when deciding how to pass down your family home. Questions we often hear are, “How do I avoid probate tax?” and “Should I add my daughter or son to the title of my home before I die?”

The best course of action will depend upon your age, health, and financial situation, as well as your relationship with your children or other beneficiaries. Adding an adult child to a home’s title might work perfectly for one person, while spelling disaster for another.

While the idea of avoiding probate tax is a positive one, there are several things you should seriously consider before adding a beneficiary to your title.

• You will no longer have full control over your home’s full equity. If you want to sell your home or re-mortgage it, you will need your child’s permission.

• If the child you add to your home’s title is sued, goes through a divorce or defaults on debt payments, the other parties could make a claim to the half of the home’s equity that is in your child’s name.

• If you put a child or other beneficiary on your home’s title, you can’t take it back. They permanently own half your home’s equity and your portion of the equity will (if ownership is joint) pass to them upon your death, as well. This is in contrast to gifting property through your will, which allows you the freedom to change your mind and adjust your estate plan as your circumstances change. You can make a new will and change how you would like to distribute your estate at any time, as long as you still have the mental capacity to do so.

• If you have multiple children, choosing one child to inherit the family home may create discord and resentment between the adult children. In some circumstances, it could also lead to costly litigation. It is possible to add a second child to the title, as well – though this will require the siblings to agree on what to do with the home after your death.

• You could convert the home ownership to “tenants in common”. This way, rather than the first adult child inheriting the entire home through right of survivorship, he or she will only retain the half of the home equity they are already entitled to. You retain the right to pass your half of the home equity along to a second child, either through your will or gifting it to them before your death.

• If your adult child does not live in your home (it is not their primary residence) and passes away before you, their estate could be charged for capital gains related to their half-interest in your home, even though their estate does not receive the benefit of that interest. This is because the adult child is considered to have received their half-interest in the home at the time they were added to title, even though that interest reverts to you upon their death, by right of survivorship.

To sum up, death and taxes are inevitable; however, the way you deal with them, specifically when it comes to passing down the family home or its proceeds, can be tailored to your specific situation.

The estate plan that worked for a friend or family member may be different from what would work best for you, and having a discussion with your lawyer early on can help you to create an effective plan and rest a bit easier.

This article is for information only and is not intended to be legal advice. If you have any questions or would like further information, you should consult a lawyer.