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Should I put my child on title to my house?

Apr 10, 2024

Adding a child to the title of your house is generally not a recommended alternative to comprehensive estate planning. At Pederson Law Offices, our goal is to empower our clients with comprehensive knowledge, enabling them to make informed decisions that align with their estate planning objectives. This blog post explores the complexities of adding a child to your property title, detailing the consequences of such a decision.


Understanding the Impact on Property Tax, Cost Basis, Control, and Exposure to Creditors


Property Tax Consequences

One of the foremost considerations when thinking about adding a child to the title of your house is the potential impact on property taxes. The change of ownership can trigger a reassessment of the property value, potentially resulting in a significant increase in property taxes. This aspect often catches many homeowners by surprise, leading to unexpected financial strain.


Loss of Step-Up in Cost Basis

Another critical factor to consider is the loss of the step-up in cost basis, which could have considerable tax implications for your child upon selling the property. Cost basis is the original purchase price of an asset and is used to calculate capital gains taxes at sale. The cost basis of inherited property is adjusted to its current market value at the time of the original owner's death, thereby minimizing capital gains taxes at sale. However, by adding a child to title during your lifetime, you might inadvertently forfeit all or a portion of this benefit, leading to higher capital gains taxes at sale.


Loss of Control

Adding a child to your house title also means a loss of unilateral control over your property. Decisions about the home, including selling or refinancing, would require the involvement of all parties on title. This shared ownership could complicate your ability to make swift decisions, particularly in situations where time-sensitive opportunities or needs arise.


Exposure to Child's Creditors

An additional factor to consider is the exposure of your property to your child’s creditors. When you add a child to the title of your house, the property may then become subject to claims by their creditors. In the event of your child’s financial difficulties, creditors may place liens on your property or even force its sale to satisfy debts. This risk is particularly pertinent if your child is involved in professions or businesses where the potential for significant liabilities exists.


The Alternative: Trusts as a Strategic Estate Planning Tool

In contrast to the direct addition of a child to a property title, establishing a trust offers a strategic alternative with numerous benefits. Trusts can provide enhanced control over assets, allowing for a more tailored approach to estate planning. By placing property into a trust, you can specify the terms under which your beneficiaries will inherit without impacting your property taxes during your lifetime. Transferring to children at death through a trust may also preserve the step-up in cost basis, ensuring that beneficiaries can minimize capital gains tax upon a future sale of the property. Furthermore, trusts can be designed to protect your estate from your beneficiaries’ creditors after your passing.


Navigating Your Options with Expert Guidance

We understand that the decision to add a child to the title of your property is not one to be taken lightly. The implications—ranging from tax consequences and loss of control to exposure to a child’s creditors—require careful consideration and expert guidance. Our team is dedicated to providing you with the nuanced advice and support you need to navigate these complex decisions.


We invite you to schedule a consultation with us to discuss your estate planning needs in detail. Our experienced attorneys at Pederson Law Offices are here to help you evaluate the pros and cons specific to your situation, ensuring that your estate planning strategies align with your long-term objectives, while protecting your interests and those of your loved ones.


Please note: This blog post is for informational purposes only and does not constitute legal advice or create an attorney-client relationship. Consult with a qualified attorney at Pederson Law Offices for advice on your specific circumstances.

Does your Revocable Living Trust address your current life circumstances?

By Grant Pederson • 03 Jan, 2024
Are you one of millions who setup your revocable living trust years ago and thought you were done? No question that a Revocable Living Trust (RLT) is a great, relatively simple, and effective estate planning tool. In fact, it is the core component of most estate plans. However, a RLT requires periodic review to ensure that it accurately addresses your family’s current circumstances and your ever changing goals. The following is a simple list of questions you should ask yourself on an annual basis to determine if your current plan is appropriate: Have there been any births, deaths, illnesses, or accidents in your family which would impact your distribution plan? Are your named beneficiaries competent and mature enough to receive the distributions pursuant to your current plan? Are any of your beneficiaries or heirs receiving or likely to receive any public assistance due to a disability? If so, please consider the appropriateness of a Special Needs Trust to protect that individual. Are the successor Trustees of your Trust and Executors of your Will all in good health and competent to serve in those capacities? Have all of your assets been changed to the name of the Trust and are your Schedules of Assets up to date? Specifically, have you purchased any new property or refinanced any old property, and have deeds been prepared to transfer that property into the name of the Trust? Has the size of your estate changed due to an inheritance, a new life insurance policy, or an increase in the value of investments, etc.? Are the attorneys in fact and health care agents for your Durable Powers of attorney in good health and still competent to serve in those capacities, or have those Powers of Attorney expired? If you have significant assets in tax-deferred or tax-free accounts such as 401k’s, IRA’s, Roth IRA’s, etc., do you understand your options regarding beneficiary designations, and how those designations will impact the estate and income tax planning aspects of your trust? New techniques are available to further protect these types of assets, without compromising the tax benefits associated with these tax-deferred or tax-free accounts. Additionally, you should also review your estate plan whenever a major change in the law occurs. At a minimum, we recommend that you sit down with your estate planning attorney to review your trust at least once every three years.

Is life insurance really tax free?

By Grant Pederson • 29 Dec, 2023
Life Insurance can be a wonderful estate planning tool when properly utilized. Not only does it provide income replacement in case of premature death, but it also provides liquidity in estates that may face significant Federal Estate Taxes. You may have been told by your insurance broker that life insurance is “tax free” to your heirs/beneficiaries. Not so fast…let’s clarify what is meant by “tax-free.” While the beneficiaries of a life insurance death benefit will typically receive that benefit free of any income tax, the total value of the death benefit will typically be included in the estate of the deceased individual for purposes of calculating Federal Estate Taxes. Remember, Estate Tax rates have fluctuated between 35 to 55 percent over the last decade. The estate tax exemption has fluctuated between $1 million and $5 million since 2001. This occurs because as the owner of the policy, the deceased individual held the power to direct where the death benefit would be paid. Thus, the IRS considers the full value of the death benefit subject to Federal Estate Taxation. To avoid Federal Estate Taxation on life insurance, you must simply avoid being the owner of the policy. The I rrevocable L ife I nsurance T rust (ILIT) is a simple and effective way to transfer life insurance proceeds “Estate and Income Tax Free” to your beneficiaries.

Timeshare Trusts

By Grant Pederson • 22 Nov, 2023
Do you own timeshare interests? If so, the following are a number of questions you may want to consider regarding your estate planning: How do you plan on distributing your timeshares to your beneficiaries when you're gone? Is it wise to make all of your kids co-owners after you pass? Did you purchase your timeshares with the hope that your kids and grandchildren could use them for years to come? Are you afraid they will be sold for a fraction of what you paid? If you're concerned about any or all of the above questions, perhaps you should consider adding Timeshare Trust provisions to your current revocable living trust. A Timeshare Trust is a way to hold title to all of your timeshare interests after you've passed. It will contain specific provisions to govern how the timeshares will be held for your family after you're gone. A Timeshare Trust allows you to designate one or more knowledgeable person(s) to manage the use of the timeshare properties or points. A Timeshare Trust can also ensure that the maintenance fees, insurance, and property taxes associated with timeshare ownership are paid proportionately by all beneficiaries. For example, the failure of a beneficiary to pay their fair share of the expenses could result in a forfeiture of use that year. Finally, a Timeshare Trust can ensure that these interests aren't sold unless a majority of the beneficiaries agree. A Timeshare Trust can be customized to meet your specific family circumstances and goals. When you use a Thousand Oaks estate planning attorney, they can assist you with the ins and outs of establishing a fool proof timeshare trust. Contact Pederson Law Offices if you're interested in learning more about how to plan for your timeshare interests.
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