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Should My Daughter Be On The Deed?

Friday, May 2nd, 2014

Quite often clients come into the office, or people with whom I casually discuss estate planning, note they “know” about probate and have figured out they can avoid probate by putting their children on their real property. Technically, they are correct. By putting another persons name, as a joint tenant with rights of survivorship, on a deed the property passes to the survivor on the death of the other owner. The problem is most of these people don’t “know” that by avoiding probate they are opening their estate up to a new level of trouble.

First of all, the idea probate has to be avoided is blown out of proportion. Sure there are reasons you should plan ahead of time so an estate doesn’t go to probate, but it has nothing to do with the cost which is what most people believe. It has more to do with the time and the potential uncertainty of the outcome. A properly executed estate plan can transfer assets almost immediately, whereas with a probated estate it can take several months; further, a properly executed estate plan can direct to whom each assets or class of assets should be distributed while a Probate Court, while certainly listening to the requests and desires of the beneficiaries, ultimately makes the decision the Court feels is in the best interest of the beneficiaries usually guided by the principals of fairness and equity.

While debunking the “probate is evil” discussion is interesting that’s not the true topic of this post. See your estate planning attorney for a more in depth discussion and if you don’t have one call the Hess Law Group, any of the attorneys would be happy to answer your questions.

The real reason for this post is the common mistake of including a loved one on a deed or bank account who is not the true owner of the property. Initially, there may be several tax reasons depending on the value of the property; however, the intricacies of a tax discussion are not meant for a website post. The two concepts which convince a clients joint ownership is a poor decision are control and creditors. When a parent places a child on a deed for his/her personal residence the child, in the eyes of the law, is just as much an owner as the parent. So, if the parent wishes to sell, rent, mortgage, refinance or perhaps make any major home improvements the parent requires the child’s signature. This may not be an issue, but what happens if the child refuses to sign? While everyone involved may understand it’s not the child’s property, in most circumstances a bank or Realtor will not act without the signatures of all persons listed on the deed.

Additionally, now that the child is on the deed, or a bank account for that matter, just as the law sees the child as an owner and requires a signature for a sale, the law similarly treats this property as owned by the child for purposes of his/her creditors. That’s right, if the child has back child support, a tax debt or files for bankruptcy that bank account or home is listed as an asset and the creditors may force a sale of the home and seize the funds in the bank account. The Court, while it may be sympathetic, will have little choice but to order the sale of the home or the release of the funds in the account.

This potential for this result, albeit unlikely in most circumstances is certainly is not worth avoiding probate for and certainly not worth it when there are several options a qualified estate planning attorney could prepare to achieve the same results without the risk.