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Thinking About Adding Your Child to Your Deed? Read This First

Adding your child to the deed to your home may seem like a simple way to ensure they receive the property when you pass away. You may be thinking, “If I add my daughter to the deed now, she won’t have to worry about getting the house later.”

Although your intentions may be good, this decision can have unintended consequences. Before changing your property ownership, it is important to understand the potential tax implications and how adding your child to the deed could affect your control over your home.

Adding Your Child to the Deed Could Create Tax Consequences

One concern is that your child could face a higher capital gains tax bill when they eventually sell the property. That’s because transferring ownership of a home during your lifetime can have different tax consequences than passing the property to a child through inheritance. The home’s original purchase price and its value when ownership is transferred can play an important role in determining the potential tax impact.

Why the Difference Between a Gift and an Inheritance Matters

When a child inherits a home after a parent’s death, the property’s tax basis is generally adjusted to its fair market value at the time of the parent’s death. This is commonly known as a step-up in basis.

That adjustment can be significant, particularly when the property has increased in value over the years.

However, when you give your child an ownership interest in your home during your lifetime, that interest generally does not receive the same tax basis adjustment. As a result, your child’s potential capital gains tax when selling the property could be higher than if they had inherited it.

The tax consequences can vary depending on the circumstances, including how the property is transferred and its value. Understanding these potential differences is important before making changes to the ownership of your home.

Your Home and Your Control Over It

Taxes are not the only consideration. Adding your child to your deed can affect your ability to make decisions about the property.

Depending on how ownership is structured, you may need your child’s cooperation to sell or refinance the home. You could also expose your property to certain risks associated with your child’s financial or legal problems, such as creditor claims.

A decision intended to protect your family could create complications you never anticipated.

Explore Your Options Before Changing Your Deed

If your goal is to make sure your child receives your home, adding them to the deed is not your only option. An estate plan can help you evaluate ways to transfer property according to your wishes while considering your family’s needs, your control over the home, and potential tax consequences.

Before making changes to your deed, consult with qualified legal and tax professionals who can help you understand the implications of your options.

Your home represents years of hard work and an important part of your financial future. Take the time to protect it thoughtfully. The right planning approach can help you provide for your child without creating unnecessary complications for either of you.

Information in this article is provided for educational purposes only and not intended to constitute legal advice. Please consult with a licensed attorney in your jurisdiction for help with your specific situation.

For assistance with Maryland and D.C. Estate Planning Probate/Estate Administration, and Business Formation matters

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