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Why Having Your Adult Child On Title To Your Home Or Bank Account Is A Bad Idea

Tuesday, 13 October 2015

by Ricky Nelson, JD

You have probably had a neighbor or friend tell you that you should put one of your kids on title to your house and your bank accounts so that if anything happens to you, that child can step in and pay your bills and won’t have to hire an attorney and if you pass away, your estate won’t have to go through probate. If done correctly, whichever asset you put your child on title to won’t have to go through probate. However, putting your child on title to your house or bank account is a really bad idea for several reasons:

  1. Your child’s future creditors can take what you consider to be your assets. If you make your child a part owner to your house or bank account, then any of your child’s future creditors will be able to take your child’s assets including part of your home or bank account. Now you might say to yourself that your child is responsible and won’t have any creditors that they can’t pay, but even if that is true, there are some events that create creditors to even responsible people like divorce or car accidents. For example, if you and your spouse decide to add your oldest son to your home as joint tenants, then your son would own 1/3 of your home. If your son then gets a divorce, then his soon-to-be ex-wife will probably have a marital interest in your home. You would then have to buy her out of the 1/3 interest or she may force the sale of your home.
  2. It makes you liable for gift taxes. You can only give a limited amount to an individual each year tax free. For 2015, that amount is $14,000. If you give someone more than $14,000 (either in cash or anything of value, including an interest in your home) then you have to pay gift taxes. For example, if you and your wife decide to add your oldest son to your home as joint tenants and your home is worth $300,000 (even if you owe $400,000) then you gifted your son $100,000 and you would owe gift taxes. There are other tax related problems that this can cause, like loss in step-up-in basis and loss of property tax benefits.
  3. It creates extra potential liabilities for your child. For example, if someone gets hurt on your property and your home insurance doesn’t pay for it all, then just as your child is a joint owner, they are jointly responsible for any damages.
  4. You lose complete control. We have all heard of the story of some adult child kicking his elderly mother out of her house after she put him on title. Most people who do put their kids on title will say that their son or daughter would never do that, but everyone has seen a family member do something that was completely out-of-character. At my office we call that “getting a bonk on the head.” You don’t want to have to worry about something like this.
  5. It creates inheritance problems if you have more than one child. The couples who meet with me who have put their child on title when they have more than one child always tell me that they want all their kids to receive equal shares after they die and that they have informed their child who is on title with them that the child should give equal portions of the house to the other children. If this is what you want to do, then putting one child on title is a bad way to do it. The child on title is under no legal obligation to give equal portions of the house to the other children, in fact if the child does give portions to the other children, then that child may have to pay gift taxes on those gifts.
The above list is just a few of the most common problems with adding one or more of your kids to the title of your home or bank account. Whatever you are trying to accomplish by adding an adult child to your assets, there are better ways of doing so. Whether you want to avoid probate, qualify for long term care Medicaid, want someone to be able to pay your bills if you can’t, or some other reason, we can help you in a way that will give you peace of mind. If you are thinking about adding a child to any of your assets, if you already have added a child to your assets, or if you are a child whose parent(s) have added you to their assets, then please call me for a free initial consultation so we can help. At the initial consultation we will discuss your specific concerns and situation, and I will work with you to come up with an estate plan that is right for you.

This information is made available by Spaulding Law for educational purposes only and not to provide legal advice. By using this website, you understand that there is no attorney-client relationship between you and Spaulding Law, unless you have entered into a separate representation agreement. This information should not be used as a substitute for competent legal advice from a licensed professional attorney.

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• Take the Pleasant Grove exit 275 from I-15
• Turn North onto Pleasant Grove Blvd
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