By a show of hands, who thinks putting your children on your deed or financial accounts is a good idea? WAIT!!!… Before raising your hand, please read this column.
Whether due to age or health concerns, a parent (or parents) may decide adding one or more of their children on a deed or financial account makes good sense. I want to “avoid probate”, or I want to “make it easy for my children to access my property in case I become disabled or die”, are two of the primary reasons given. All too often, these actions are taken without first being discussed with an attorney, and without recognizing the potential detrimental consequences of doing so. This column outlines several possible adverse consequences resulting from adding children as co-owners of any property, and suggests better alternatives are available.
When you add a child as a co-owner on a deed or financial account, you make a completed transfer of an ownership interest to that child. By doing so, here are just some of the potential problems you may face:
(i) you may have just made a taxable gift necessitating the filing of a gift tax return;
(ii) as a co-owner, your child may possess rights to access and use your money and your investments for his or her own personal wants or needs;
(iii) if your child has full access to your accounts and possesses ownership claims in your home, then probably so do your child’s creditors (such as in bankruptcy) and your child’s ex-spouse in any future divorce;
(iv) if you want to sell your home and move elsewhere, your child must consent and will be listed as a seller on the closing statement and IRS 1099-S;
(v) if you want to borrow against your home, as a co-owner, your child must at least consent to subject his or her interest to the mortgage, and your child’s credit issues may adversely affect procuring the loan or the approved terms of such loan;
(vi) if your child dies, that child’s ownership interest in your home and in your financial accounts may become an asset of that child’s estate, and may pass to the child’s surviving spouse or children;
(vii) you may have just adversely affected some of the beneficial homestead features of your primary residence;
(viii) you may have just made a transfer for Medicaid qualification purposes;
(ix) you may have unintentionally disinherited those children who were not named as co-owners; and
(x) you probably lost a future “step-up” in basis in the ownership interest in the home or investment positions transferred to your child.
With so many “less problematic” ways to avoid probate or provide children with the means to assist aging parents, seldom is placing a child as co-owner of a home or on financial accounts a good idea. If you are considering such a plan, you should first discuss your plan and objectives with a knowledgeable estate planning attorney. At Bob Bible Law, we have the knowledge and over 35 years of experience to guide you through these and all of your other estate planning decisions.