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Adding a deed of trust isn't always an effective way to make sure your child can inherit the property, and often has unintended consequences.

Putting a child's name on the deed to your property may seem like a harmless, easy way to ensure they can inherit your property. However, there are many potential complications when doing so.

In fact, there are many people who prefer to add their child's name to their deed instead of creating a will.

What is a Will and Why is it Important?

A will is a legal document that explains your final wishes and how you want to distribute your property. It often also includes information about your burial wishes, how to pay off your debts, and more.

It's important to have a will as part of your estate plan because it provides a clear plan for settling your affairs. Without a will, your estate might go to a probate court, where a judge will determine what happens to your estate.

Distributing property via your will is legally binding, and the inheritance may apply without as many complications. You can also place your real estate property into a trust. A trust relates to a will and can provide more specific instructions, as well as offer certain benefits, such as tax breaks.

There are many types of deeds, including a short-form deed, and a deed of trust in California; it is a type of deed that involves three parties. It transfers the legal title of real estate to a neutral trustee until the borrower pays back the money. At that point, the title company will return ownership of the property to the borrower.

6 Reasons Not to Put Your Child’s Name on Your Deed

Though putting your child's name on the deed of trust may seem like an effective way to pass on property, it often isn't so simple in practice.

The new owner may face a barrage of taxes, and it also may expose you to certain legal threats.

Joint ownership has many unexpected legal consequences. Here are just a few of the potential outcomes if you add a child's name to your deed of trust to show ownership.

Loss of Control

Adding your child's name to your deed of trust in California makes that child the legal co-owner of your property, which means you don't have total control anymore.

When you own a home jointly, you don't have sole control over the property. Instead, your child's actions and finances can affect the status of your property. It also limits your ability to get a mortgage without getting your child's permission.

Additionally, there's the potential issue of a due-on-sale clause, which dictates that a home loan must be paid in full if the property transfers ownership. This can put the surviving joint tenant in a bind financially.

Taxable Gift

Making your child a co-owner can also count as a taxable gift, which can result in a hefty tax that your child may or may not be prepared to pay. As joint tenants, you each will have certain obligations.

Federal law states that recipients must pay taxes on gift property worth over a certain amount. With the right estate plan in place, an inherited property's deed transfers smoothly without the same tax issues.

To avoid this, consider adding them as a beneficiary of a trust instead. Your trustee can handle the property, and a lawyer can ensure that it is structured to minimize taxes.

Inheritance by Others

Adding your child's name to your deed of trust can also result in additional legal problems. If your child happens to die before you, it's possible that their partial ownership of the house could pass on to his or her surviving spouse.

If your child dies, then that may result in their relatives inheriting their share of the property, whether that means a spouse, a child, or someone else.

The Garn St. Germain Act protects some property inheritors from secured loans due on sale clauses. It provides home exceptions for when a relative inherits property through a will, trust, or joint tenant laws.

Creditor Claims

Ownership of real property opens you up to claims from creditors. If you owe anyone a significant sum of money, they can come after your home to get their payments.

If your child is in debt, the creditors can attempt to get their money back from the home if it is held in both of your names. Creditors can go after vehicles, valuables, and even properties. They may try to force you to sell in order to get their payment.

Ineligibility for Medicaid Benefits

Adding your child's name to deeds makes them an owner and counts as a taxable gift. In addition to affecting your child's finances, this can also affect your eligibility for Medicaid benefits, which becomes more important as you age.

The Medicaid application process involves checking to see if you have given large gifts with the intention of qualifying for Medicaid. Giving these large gifts can make you ineligible for Medicaid for a period of time.

That means if you add a beneficiary to your deed and then apply for Medicaid the same year, you may not qualify.

Bankruptcy Claims

If your child ever runs into financial trouble, having their name on the deed to your home could affect your home ownership. If your child files for bankruptcy, for example, federal law states that the bankruptcy court could come after their partial ownership of your home.

In this situation, you could be forced to sell your real estate to pay off those debts. Whether it's your primary residence or another property, this can seriously affect your finances.

Protect Your Assets - Hire an Experienced Orange County Estate Planning Attorney

For most people, keeping full ownership of their property in life is the best move. Instead of using a California deed of trust to pass on property, consider creating a trust instead.

Parker Law Offices focuses on estate law, and we can help you find a satisfactory solution to your concerns about adding your child's name to your deed. We can help you create a comprehensive estate plan that allows for easy transfer of property to a beneficiary.

We pride ourselves on fostering a strong attorney-client relationship with everyone who seeks our services. For a free consultation, contact us at 949-867-4818 at Parker Law Offices today!

During estate planning, the importance of real estate often gets overlooked. It's essential to understand how the decisions you make now may impact you ten or twenty years in the future. For example, using a deed of trust to show ownership of a child over your home is an excellent option.

At an Orange County estate planning firm, you'll get answers to your questions and find the best way to handle real estate transactions. There are other options that you may want to consider before adding your child's name to the deed.

What is a Deed?

A deed is a legal document that provides legal proof of a transfer of ownership from one person to another.

To create one, you need to adhere to state law standards for a valid deed, including formatting and other requirements A deed also includes a legal description of the property. Once you have all the necessary legal documents, the deed needs to be signed by each of the parties involved and notarized.

A deed of trust on a house is both a deed and a way to secure a real estate loan. It involves three parties, including the borrower, the trustee or title company, and the beneficiary. You can use a deed of trust to show ownership until you own a property outright.

When you create a trust deed, the trustee holds the legal title until the mortgage is paid. At the end of the real estate transaction when the borrower has paid off the mortgage or else sold the property, the deed of trust is canceled and the title returns to the borrower. However, if the borrower defaults, the property will be put through a judicial foreclosure.

Moreover, adding a child to your deed of trust involves creating a new deed that lists both of you as owners.

What is Your Purpose?

If you are planning on adding a name on the deed of house, consider your reasons for doing so. Many parents choose to add their children to the deed either to make sure that the child becomes a property owner or because they want to pass the house down to the child

How does a deed affect your finances? We'll discuss the effects of this change below.

For Ownership of the Property

Once you add your child's name to the deed of trust, there are some legal changes that you'll need to be aware of. First of all, your child becomes a co-owner. This means that when a parent wants to sell or refinance the house, the child needs to approve of it because the mortgage involves both of you.

If the home is not completely paid off, your child may be affected by monthly payments and other obligations. On the other hand, if your child gets into debt, their creditors can force a property sale to collect their payment.

The potential outcomes also depend on the matter in which your child holds legal title of the property.

Transfer of Property Upon Parent’s Passing

Some people add their children's names to their deed because they want to make sure the property passes on to them. In this case, adding your child's name to the deed of trust may not be the best option. It may instead involve your child in a mortgage loan or any other plans you have for the property.

Pros and Cons of Adding Your Child’s Name to Your Home’s Deed

Adding your child's name to the deed of your home has several possible effects. Some are positive, but those positives may come with unintended negative consequences. Here's a list of the pros and cons that you may encounter.

Pros:

Cons:

Make the Right Decision and Hire an Orange County Estate Planning Attorney

When you're unsure about the best way to pass down your house, the best course of action is to get in touch with an estate trust lawyer. A qualified lawyer can provide legal advice that is tailored to your unique situation.

The best course of action may vary depending on the type of property ownership you want if you have a traditional mortgage and other concerns. For some, using a deed of trust to show ownership is a logical solution. For many others, it can cause more problems than it solves.

Schedule a free consultation and obtain quality legal advice. Contact Parker Law Offices at 949-867-4818 now!

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