Should I add my Child/Heir to the House Deed to Avoid Probate?

Should I add my child to the house to avoid probate and make it simpler when I die? This is a question we often get from clients who are inquiring on behalf of their aging parents or from the parents themselves.

The answer obviously depends on each scenario and we would recommend you speak to your advisor to get the answer that is best for you but here are a few things to consider:

• Gift: As soon as you add their name to the title, you have given them a gift. The value of that portion of the home is the value of that gift. That gift can have tax implications depending on the value of the home
• Taxes: If you give property to your children, your tax basis becomes theirs. For example, if you bought the house years ago for $50,000 and made no improvements, your tax basis is $50,000. If you give the house to your children, their basis is the same. However, if the house is now worth $500,000, and your children sell without living in the property for at least two years, they will have to pay capital gains tax on the profit. However, if you leave the house to your children in will, on the death of both you and your spouse, your children will take advantage of what is known as the “stepped up” basis.
• Equity: What if you need the value of that house? We hope you don’t but you don’t want to end up 10 or 15 years from now without a house and with little or no income for retirement. While we don’t normally utilize equity in the home for income, if you “give” all or a portion of the house to your child then it will significantly diminish your opportunity to pull out the equity (by selling or a reverse mortgage) you have in your house if and when you need it down the road.
• Probate: Yes, by adding your child to the title you can avoid probate making the process of transferring assets at your death easier.

As always, the important thing is fitting this into your overall financial plan? It may make sense and it may not.