The Pros and Cons of Adding Your Children to Your Real Estate
For many parents, protecting their legacy and ensuring a smooth transfer of assets to their children is a top priority. One common strategy is adding a child’s name to the title of a home or other real estate. While this may seem like a straightforward solution to avoid probate or simplify inheritance, the decision carries both benefits and risks. Here’s a closer look at the pros and cons of this approach.
Pros of Adding Your Child to Your Real Estate Title
1. Avoiding Probate
When a child is added as a joint tenant with rights of survivorship, the property typically passes directly to them upon the parent’s death—without going through probate. This can save time, legal fees, and preserve privacy.
2. A Sense of Security
Parents may feel reassured knowing their child has a legal interest in the home, especially if the child lives with them or helps with the mortgage and upkeep.
3. Simplified Transfer of Ownership
Adding a child’s name now could reduce paperwork and streamline the inheritance process in the future.
Cons of Adding Your Child to Your Real Estate Title
1. Loss of Control
Once your child is on the title, they have legal rights to the property. You may need their consent to refinance, sell, or make certain decisions regarding the property.
2. Exposure to Your Child’s Financial Issues
If your child goes through a divorce, bankruptcy, or legal judgment, their share of the property could be considered an asset that creditors or courts may target.
3. Tax Consequences
Transferring part of your property may trigger gift taxes, and your child may lose the benefit of a stepped-up basis in capital gains when they inherit. This could result in a higher tax bill if the property is later sold.
4. Family Disputes
Adding one child but not others—or making title decisions without clear communication—can spark misunderstandings or legal challenges later on.
Consider Alternatives
Before taking this step, you might want to explore less risky alternatives:
- Living Trusts: These allow you to retain control while ensuring a smooth transfer upon your passing. Further, living trusts are private and can be amended in the future to allow for maximum flexibility.
- Transfer on Death Instrument (TODI): TODIs are another alternative that is available in Illinois. It may not be available in other states. This works similarly to a trust but only allows for the transfer of real estate. Unlike a trust, it is public because it is recorded and allows anyone to see who will inherit the property.
- Wills: While subject to probate, they can offer clarity and fairness when properly written and updated. Wills are filed and publicly available to ensure that the estate is passed to the proper heirs and legatees.
In conclusion, adding your children to your real estate title can be a well-meaning move, but it’s not always the wisest one. It’s important to weigh the benefits against the potential legal, financial, and relational consequences. Consulting with an estate planning attorney can help you make a decision that aligns with your goals—and protects your family’s future.
If you would like to know more about real estate, please call (312) 546-5077 or [email protected].
Thank you for reading. Until we meet again, love one another.
Janice
