Risks of Giving Your Adult Kid Your House

deed of trust

There are many ways to share ownership of a property with your children. Some parents choose the straightforward option of adding their children's names directly to the deed of trust. However, choosing a trust instead will help you avoid complications like inheritance tax and probate court.

A deed is a legally binding document that has serious effects on both parties. Before you make a decision, it's a good idea to gather legal information from a professional familiar with state laws.

Ways Properties Can be Owned

There are many types of property ownership, and as you explore options, you may find one that fits better than simply putting your child's name on the deed to your home.

Legal documents like a will or trust, guarantee that your child will receive your property after your death. When you plan the transfer this way, they can avoid certain taxes and probate court.

When you put your child's name on the deed of your house, there are a few options for ownership types.

Joint Tenancy

Joint tenancy refers to the situation when two or more people own a property, all of them with equal shares. This type of ownership creates the right of survivorship, which means that when one party dies, their share goes to the surviving parties.

If four people share a property with joint tenancy, each of them owns 25%. If one of them dies, the rest will then own 33.33% of the property.

Tenants in Common

Tenants in common are two or more people who share ownership rights on a property. They don't necessarily have the same ownership over the property, and they may have an equal or different percentage of ownership.

When one tenant passes away, their share of the property passes on to their beneficiaries. For example, if two parties own a plot of land and each owns 50%, they can each pass on 50% to their heirs after death.

Tenancy in Entirety

Tenancy in entirety is a way to share ownership of a property that's only available to married couples. It allows each of them to own the property in its entirety. This is possible by treating them as a shared legal unit.

Crucially, this form of ownership creates a right of survivorship that means the surviving spouse receives the home's title in full. Creditors cannot enforce a lien on the property that is owned this way if one spouse was responsible for all the debt.

For example, if one spouse owes $50,000, creditors cannot force the debtor to sell property owned in this manner.

Community Property

Community property is another form of shared ownership exclusive to married couples. It affects property acquired by spouses during a marriage. Under state law, this property is determined to belong equally to both parties involved. It exists in only a few states, including California.

If you buy a house during the marriage, for example, your ownership is 50-50, without regard to how much each party actually spent on the house.

What are the Risks of Giving Your House to Your Adult Child?

Though adding your child to your deed seems like a simple solution to concerns about inheritance, the effects on both of your finances are far from simple.

How does a deed transfer affect your finances? It can put a tax burden on your child or disqualify you from Medicaid if you make the transfer within five years of your application. It can even jeopardize your home if your child gets into debt and the creditors put a lien on the property.

Adding a name to a deed of trust in California can also complicate things. A deed of trust on a house is an alternative to a mortgage loan, however, it is also a secured real estate transaction that operates in similar terms.

A neutral third party known as the trustee holds the property's legal title until the borrower pays off the loan. However, the borrower retains the equitable title during this period and is responsible for the property's maintenance and other obligations.

If the borrower defaults on the loan, then a judicial foreclosure process may follow. Involving your child in the home buying process means that their finances can affect your real estate transactions, and the reverse is true as well.

Creating a trust or a will has a crucial advantage over adding names to deeds because it can protect your assets and reduce taxes for the beneficiary.

Hire the Right Estate Trust Lawyer for Your Asset Protection

During estate planning, protecting your real property should be a priority. An experienced Orange County estate planning attorney can help you navigate inheritance law and find a way to pass your property on to your children. Adding names to your deed of trust isn't the only option.

We are devoted to finding custom solutions for our clients. Get a free consultation to discuss your options, contact Parker Law Offices by filling out our online form or calling us at 949-867-4818 today!

Maria Parker assists her clients plan for their end of life health care wishes and the ultimate distribution of their wealth after death. She personally experienced the importance of planning at the time her father passed away.

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