Should I Deed My Home to My Children?By: Roman Aminov, Esq.
I often receive phone calls from potential clients asking whether, as an estate planning and elder attorney, I recommend that they add their children as co-owners to the deed of their house, co-op, or condominium. The callers are usually concerned with avoiding probate or protecting their home from Medicaid if they need long term care. The answer is almost always no, and this article will outline some of the reasons why.
Risk of Children’s Creditors
Adding a child to your home makes him a joint owner, which opens your home up to his creditors; past, present, and future. If the child is at fault in a car accident, is sued for negligence, or owes money to a spouse or creditor, your house can be used to satisfy claims against him.
Loss of Control Over the Home
Want to refinance or sell the property? By adding a child to the title of your home, you will need their consent to do either. Additionally, the portion of the home which has been transferred to a child as a tenant in common will bypass your will and go through the estate of the child. That means that if the child predeceases you, you could wind up owning the house together with your son or daughter in law or grandchildren.
Adding a child on the deed is equivalent to gifting part of the house to them. Consequently, unless a specific exception applies, the gift will make you ineligible for New York Nursing Home Medicaid for up to 5 years.
Loss of Enhanced STAR Real Estate Tax Exemption
For seniors who are receiving a real estate tax break, also known as Enhanced STAR, adding a child under 65 to the deed can cause them to lose part of their tax exemption. That is because the rules requires that all owners must be 65 or older by the end of the calendar year in which the exemption begins. I have seen the New York assessor’s office attempt to collect 6 years worth of improperly granted exemptions after realizing that a child under 65 had been added to an otherwise eligible property.
Partial Loss of Homestead Exclusion Upon Sale
Under current tax law, a homeowner can exempt up to $250,000 ($500,000 if married) of gain upon the sale of their home during their life. If a child is added, and doesn’t live in the home, their portion of home is not subject to this exception resulting in an unnecessary capital gains tax (as high as 31.5%) if the home is sold.
Loss of Step-Up In Basis
In my opinion, one of the most compelling reasons not to add a child to a deed is the loss of one of the most valuable IRS “gifts” that we have been given: the step-up in basis upon death. This “gift” allows your beneficiaries to inherit your property, at the basis that the property will be worth when you pass away, wiping out any capital gains tax which they may otherwise have had to pay. Adding a child to the deed will cause them to pay capital gains tax if they sell the home after you pass away since they wont have the advantage of the step-up in basis for their portion.
In almost all situations, it doesn’t make sense to add a child to the deed as a joint or co-tenant. There are better ways to avoid probate and/or protect the home than simply gifting it to a child. Some clients will benefit most from a Medicaid Trust, other clients may find a life estate deed more appropriate, while still others may prefer a revocable living trust to suit their needs. Every situation is unique and a free phone consultation with an estate planning and elder attorney is a good step towards learning your options.
Roman Aminov, Esq. is an estate planning and elder law attorney. You can contact Roman now for a free phone consultation: Law Offices of Roman Aminov 147-17 Union Turnpike, Flushing, NY 11367 (347) 766-2685