The answer is an emphatic NO.
This is one of the BIGGEST MISTAKES that people make. A transfer of your home to your children is among the worst possible moves to make. First, the transfer is still a disqualifying transfer if made during the five-year look-back period, and will be subject to a penalty, but there are far worse consequences. A transfer of the deed can help you avoid probate, but that is a death-bed solution only.
If you transfer a deed to your child, you will:
- Create serious tax consequences for you and your children. The transfer will require you to file a gift tax return and could subject you to gift taxes. Even more dangerous is that you will greatly increase the potential capital gains taxes if the property is later sold. These capital gains taxes can easily go into six figures! Instead, if the children inherit through a trust, we can completely eliminate all capital gains taxes in most circumstances.
- The property is now susceptible to the children’s creditors, including the IRS, creditors, and divorce. Once they are on title, they are part owner of the home, and creditors can seek to attach it. A divorcing spouse could also seek a share of the home as part of the division of marital assets in a divorce case.
- The children’s liabilities become tour liabilities. For example, if your child gets into a car accident and is sued, your home can be available as an asset for paying off a court judgment against your child.
Instead of adding your children's names to your deed, the best thing to do is plan ahead. Give us a call today to set up a Strategic Planning Session to learn how to avoid this mistake and protect your home!