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
- 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.
- 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.
- 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.
- 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.
- 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.
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