Should You Add Your Children To Your Deed As Part of Estate Planning
Nov. 30, 2020
Probate Is Long And Expensive
A question I am often asked is whether children should be added to the deed of one's house to avoid probate. As a reminder, a probate the process whereby the court oversees the administration of a decedent's estate (with our without a will). Even the most streamlined probate cases can take up to a year from start to finish, be unduly stressful, and costs tens of thousands of dollars to the estate.
Pitfalls of Title Transfers
If done correctly, adding children to the title of your home can avoid the house from having to go through probate. However, before taking this step, there are some serious disadvantages to consider:
First, keep in mind if you add another person to the deed to your home, you are making a gift of some portion of the ownership of your home to someone else. This means you lose a great deal of control. You cannot get a mortgage, refinance, or sell the home without the written consent of the other person. Most clients do not view this a significant risk, however, if there's ever a "falling out" this can create a huge problem because you will be unable to make a sole decision concerning the property without the consent of the other person. Although your daughter or son may not be problematic, often sons-in-law and daughters-in-law influence the decisions of their spouses and this often results in unpleasant consequences.
Second, if the child you add to your deed wants to sell the property, you may be forced to do so. A legal action could be filed against you forcing you to sell the property, even if its your primary residence, against your will. This is known as a "partition action." The law gives the court no discretion in this type of case and if the property cannot be physically divided (i.e. a boundary line adjustment of some type), then the property must be sold, the costs of the sell (real estate commissions, inspections, escrow costs) divided between the parties, and the net proceeds divided. This could mean there is insufficient money left over for you to buy another property.
Third, even in the best of family without ever facing conflict, you could place yourself in jeopardy of a stranger gaining control. If the person you gift a portion gift a portion of your home to faces bad times, being sued, losing a job, becoming disabled through injury or illness, the interest you gave them in the home could be used to satisfy their creditors by loss in a bankruptcy or foreclosure.
Fourth, there is more than one way persons can share title to real estate. Title can be jointly held with "survivorship rights" or without. If the deed is improperly prepared, despite your best intentions, you could end up in a situation where you gift a portion of your property, but still do not avoid probate.
Do Your Homework
For most, the risks are simply not a good idea. Before giving away a portion of your home it's best to get legal advice and review other alternatives to avoid probate without these risks.