by Patricia Glover, CLDP, CP/ACP, CNSA Certified Legal Document Preparer,
Glover Court Solutions & Estate Planning
Co-owning real estate with your children may create more problems than it solves and may not achieve your intended goals in the long run. Setting up a revocable living trust or recording a beneficiary deed, which only transfers ownership of your home upon your death, may be used to avoid these risks.
No “take backs”: If you want to sell or refinance your home, you must obtain signatures from each person who jointly owns your home. If that person is incapacitated, you may end up in probate court asking a judge for permission to sell your own home.
Or if the person refuses to sign, you may end up in costly litigation trying to remove the co-owner from your deed.
Creditors: A person’s primary homestead is typically protected from creditors; however, when you add a person onto the deed, it loses some of those protections. Also, if your child gets divorced, your home may be considered part of your child’s assets subject to distribution in the divorce proceedings.
Taxes: If your child predeceases you, you may owe inheritance tax on the portion of your home you prematurely “gifted” to your child. Additionally, home values typically increase over time, and half of the gain may become taxable to your child when the home sells.
Such taxes can be avoided by transferring the property through inheritance instead.
Heirs of a deceased co-owner: Depending on how the deed is worded (e.g., “tenants in common”), your child’s heirs may have a legal claim to your home if your child predeceases you.