Parents often ask us to add a child to the deed so the house will not have to go through probate. It works, but it comes with costs that most people do not expect.
What can go wrong
- It is a gift, and you cannot take it back. Your child becomes a co-owner, and you need your child's signature to sell or refinance.
- Your child's creditors, divorce or bankruptcy can reach the child's share of your home.
- The tax basis changes. A child who receives property as a gift generally takes your original basis. A child who inherits it generally receives a basis equal to its value at your death. The difference can mean a much larger capital gain when the house is sold.
- A gift tax return may be required.
- A transfer can affect eligibility if you need Medicaid to pay for long-term care within the next five years.
A better tool for most families
Ohio's Transfer on Death Designation Affidavit names who receives the property at your death. You keep full ownership while you are alive, and you can sell, refinance or change the beneficiary without anyone's consent. At your death the property passes to the beneficiary without probate, and it is generally treated as inherited property for tax purposes.
When adding someone makes sense
Sometimes a child really is a co-owner, for example when the child is paying for the house or moving in to share it. Even then, how the title is held and what happens if one owner dies or wants out should be decided before the deed is signed.
If you already added a child to your deed, it may still be possible to improve the situation. Bring us the deed and we will tell you where you stand.