Colliton Law

Answering Should I Add My Child’s Name To My Deed

Adding_Child_To_Home_Deed

Some questions tend to repeat themselves over time to the point as a practitioner I see them coming. One of those is “Should I add my child’s name to my Deed?” A closely related question is “Should I transfer the house to my son or daughter?” Although my usual answer to asset and estate questions is “it depends,” my opinion is that more often than not the answer to these questions is “no.” There are, however, important exceptions discussed below.

I understand the motivation. Parents who have built their assets over time often feel motivated to share them with their children during lifetime. Sometimes the reasoning relates to perceived avoidance of inheritance tax or avoidance of probate. Sometimes, having heard of the “five year lookback” for Medicaid a parent believes that transferring the house now and waiting out the five years is an answer. That applies only to Medicaid in Pennsylvania which is nursing home care and some at-home care for those with limited assets and income. There is no “right” answer. There are, however, options that can be considered in light of opportunities gained or lost. Here are some questions.

  • Why are you considering the transfer? If the answer is that your neighbor or friend did it and it seemed to work for him/her you need to consider whether the same circumstances apply to you. Also, whether you know the full story. Personal satisfaction involved in making a transfer differs according to the person and circumstances.
  • Might you might change your mind after the transfer is made? Remember, once you add a name to the title or transfer the property completely you need the agreement of the other person to change it back again.
  • Does your child live with you or has she/he made substantial contributions that enable you to continue living where you are?Are you, in effect, “partners?” If your child provided substantial financial assistance to enable you to buy or keep the house he/she might rightfully anticipate an interest in the home whether it is by title or a private mortgage or other means. In a different context, if a child lives with you for at least two years during which time she/he cares for you such that you do not need to go to a nursing home, the government has a special exception under the Medicaid rules called “Caretaker Child” that would allow transfer of the house to the child after that period without transfer penalties.
  • Have you considered the cost to your child of joint or sole ownership of the house? If you are joint owner with your son or daughter, absent other agreement, both of you are responsible for the property taxes, utilities, maintenance and upkeep of the property. You might also share the cost of a mortgage.
  • Inheriting a house provides a “step up in basis” at death which does not occur if you give the house to your child. If you bought the house for $50,000 and it is worth $300,000 on your death and your child (or children) inherit, the federal government ignores for capital gains tax purposes the $250,000 increase in value and they do not have to pay capital gains tax on the increase in value on resale. If you give the house to your child during your lifetime and he/she resells the $50,000 house for $300,000, then, (unless he/she lived in the house) he/she would be responsible to pay taxes on the increase in value. Living in a house for two of the last five years or inheriting a house has substantial tax benefit.
  • What are your other assets if you decide to move after a transfer? Many seniors decide to move to more comfortable or accessible locations, like continuing care retirement communities or even smaller or more modern residences with amenities. If you add a name to a title on the house or transfer it you may limit your funds that would be available to make the transition. If you have enough even after the transfer it might not matter.
  • Finally, it should be obvious there are many factors to be considered and they should be done with full understanding of the positives and negatives for everyone. A well thought out Family Agreement with an attorney who understands financial results and/or with a similarly situated financial advisor may help.

About the Author Janet Colliton

Esquire, Colliton Law Associates, P.C. Janet Colliton has practiced law for over 38 years, 37 of them in Chester County, Pennsylvania, a suburb of Philadelphia. Her practice, Colliton Law Associates, PC, is limited to elder law, Medicaid, including advice, applications and appeals, and other benefits planning including Veterans benefits, life care and special needs planning, guardianships, retirement, and estate planning and administration.

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1 comment
Odii Victor says August 6, 2023

For clarity, is there tax to be paid upon transfer of property or house to a (one’s) child?

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