Five Reasons NOT to add your Child to your Deed
Every couple of months, someone asks me, “I really just have my house. And I know jointly-titled property avoids probate – wouldn’t the cheapest, simplest thing for me to do be to add my child to the deed, so she gets the house when I die?”
The answer? Maybe. Technically, what you are doing when you “put someone on the deed” is conveying a share of your property to them, today, by signing a deed to them and recording it at the Registry of Deeds. Here are some reasons you might NOT want to do that:
1. If you go into a nursing home and need to apply for Medicaid, it could complicate and delay approval of your benefits, or even lose your child some or all of her inheritance. The State assumes that jointly-titled property belongs to you, not your child. Even if you die before Medicaid spends a lot of money on you, your child might have to hire a lawyer and go to court to show that she contributed to a mortgage, maintenance, or other costs to be allowed to keep even half of the house after your death. Massachusetts is being particularly aggressive in its efforts to go after jointly-titled property after a Medicaid recipient dies. If a nursing home is a concern for you, contact us for more information.
2. It’s a taxable gift. Well, at least it’s a reportable gift. Any gift of money or property to any one person in one year must be reported to the IRS on Form 709. There’s some cost to that – and there are failure-to-file penalties and interest that accumulates year after year if you don’t file that return.
3. It becomes her property, too – which means she has to agree to sell or refinance, so you lose some control over your own house, while you’re still alive.
4. Her creditors can go after it because it’s half hers. The most common creditors for middle-class married people? Divorcing spouses – remember, in New Hampshire and Massachusetts, the divorce court will start with the assumption that half of your child’s property is fair game for her spouse in a divorce. You can lose your home through your child’s business failure or bankruptcy, too.
5. What about your other children? Sometimes money does strange things to people, especially when you’re not there to see it. People say “my daughter is trustworthy; she’ll sell the house and give half the money to her brother, like she knows I want her to.” Just know that if you add her to the deed in your lifetime, when you die, it’s her property alone – she has no legal obligation to give anything to her brother (and if she does, she’s made a reportable, and potentially taxable, gift – see #2).
What’s the alternative? Create an estate plan that uses a trust or a will to direct where your house and other property will go after you die.