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

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. Also, if you pass away, your estate won’t have to go through probate. If done correctly, that is all true. However, putting your child on title to your house or bank account is a really bad idea for several reasons:

1. 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 all or part of your home and bank accounts. You might think 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. Suppose, you and your spouse add your 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 ex-wife will probably have a marital interest in your home. You then have to buy her out 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 2017, that amount is $15,000. If you give someone more than $15,000 (either in cash or anything of value, including an interest in your home) you then may have a gift tax problem or need to file a gift tax return (which usually doesn’t get done). For example, if you and your wife decide to add your oldest son to your home as joint tenants and your home is worth $300,000.00 (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 your child as a joint owner can be responsible for any damages.
4. You lose complete control. Perhaps you have heard about a child kicking an elderly parent out of their house after being put on the title. Most people will say that this would never happen, but even family members can act completely out-of-character when pressured by outside influences.
5. It creates inheritance problems. Frequently a couple will put one of their children on the title to their house with the directive that all their children are to receive equal portions of the property upon the couple’s death. However, such a child is under no legal obligation to give equal portions of the proceeds from the sale 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.

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 whatever the reason, there are better ways of doing so then adding children to titles. If you have added a child to your assets, or if you are a child whose parent(s) have added you, maybe you should reconsider the approach taken. You also don’t need to have amassed significant wealth to need a customized estate plan. Call the Rudd Cooper for a free initial consultation.

Mr. Nelson is an Associate with The Rudd Cooper, in Salt Lake City, Utah with extensive expertise in Wills, Trusts, Probate and complex Estate Planning. Mr. Nelson can be contacted at (801) 676-5337 or rnelson@ruddfirm.com

THIS ARTICLE IS NOT INTENDED AS LEGAL ADVICE, AND IS FOR INFORMATIONAL PURPOSES ONLY.