The information provided in this video is intended for general informational purposes only and is not legal advice. Viewers should consult with a qualified attorney for specific legal advice tailored to their situation.
A frequent mistake many well-meaning individuals make in an attempt to bypass proper estate planning is adding their children to the title of their property, or simply putting the entire house in their children’s names.
So what’s the problem with that?
In this video, we’ll explore the pitfalls of adding your children to the title of your properties as a way to transfer property at death. If you’re thinking about adding a Thai spouse or partner who is not a U.S. citizen to the title, be sure to watch Part 2 of this series, where I’ll discuss those issues so you can avoid stepping into a huge tax bill.
Let’s dive in and see why you should think twice before adding your kids’ names to your property titles, even with the best intentions.
Picture this: you and your spouse have worked hard to build a nice nest egg of real estate, cash, and investment accounts. You have a good relationship with your financially responsible children.
Instead of creating a will or trust, you may think it’s respectful and convenient to simply add your children’s names to the title of your property or financial accounts so the assets pass automatically by right of survivorship. It seems harmless enough. The kids can help manage bills, banking issues, and take care of the house, especially if you spend part of the year in Thailand or elsewhere overseas.
At death, the property automatically transfers to the surviving owners without probate or the need to set up a trust.
What could possibly go wrong?
First, by adding your children’s names to the title, you are essentially giving away at least part of your property. Many of my clients don’t realize the implications of this step.
If your home or investment property is worth $1 million, adding one child to the title may effectively mean giving away $500,000 today. If you add more than one child, the amount may be even greater. Make sure that if you do this, you truly intend to make a gift of your property.
Second, one of the most significant concerns is the potential for substantial tax liabilities, and no one wants to pay more taxes than necessary.
For instance, you may lose the benefit of the “step-up in basis” for capital gains tax purposes. Normally, when appreciated property passes at death, the tax basis resets to the property’s fair market value at the date of death. By giving the property to your child while you are still alive, you may forfeit this major tax advantage.
Let’s look at an example.
Suppose you bought your home years ago for $100,000, and it is now worth $1 million. Your current tax basis is $100,000, meaning you have a gain of $900,000. If you sold the property today, that gain could potentially be subject to capital gains tax of up to 20%.
In the first scenario, you pass the property to your child upon your death when the house is worth $1 million. The basis resets to $1 million. If your child later sells the home for $1 million, there would be no capital gains tax due. If they sell it for more, taxes would only apply to the amount above the new $1 million basis.
In the second scenario, you add your child to the title during your lifetime, effectively giving them half the house worth $500,000. In that case, the basis for their half does not reset. Instead, they inherit your original basis for that portion, which would be $50,000. If the house later sells for $1 million, their half ownership would reflect a gain of $450,000, potentially subject to capital gains tax.
There may also be gift tax issues.
For most people, gift tax will not be a concern because individuals can claim a lifetime exemption of approximately $15 million, or $30 million for married couples, in 2026. However, for non-U.S. citizens, the exemption rules can be very different and significantly lower.
Even if gift tax is not a major issue, proper tax filings may still be required, and capital gains taxes will still be based on the property’s original cost basis.
You may also face a reassessment of property taxes.
Adding a name to a property title is typically considered a change of ownership by most county assessor offices. This often triggers a reassessment of the property’s value and a recalculation of property taxes. While some states, such as California, offer limited exemptions for certain family transfers, many states will reassess the property and potentially increase the taxes when a name is added to the title.
Another major issue is creditor risk.
Once your child co-owns the home, their creditors may be able to pursue their share of the property if they run into debt problems, are sued, file for bankruptcy, or default on obligations. If the government seeks repayment for benefits they received, the ownership interest you gifted them could become a target.
Another issue is Medicaid penalties and possible disqualification from benefits.
Gifting property can render you ineligible for Medicaid for up to five years due to transfer penalties. Additionally, you might unintentionally disqualify your child from need-based financial aid simply because their name appears on the title.
They may also lose eligibility for certain state or government benefits, especially if they have special needs. In some situations, the state may later seek reimbursement for services provided and pursue claims against the property.
Finally, transferring ownership generally means giving up some control over your property.
Even if your relationship with your child is excellent today, circumstances can change. You may later find it difficult to sell, refinance, or obtain a reverse mortgage without your child’s consent. And remember, you cannot simply change your mind and take the property back. Your child would have to voluntarily transfer their ownership interest back to you.
The bottom line is this: adding your children’s names to your property title may seem like a quick and easy way to avoid probate, but it can create many unintended complications.
Proper estate planning through wills or trusts can help you maintain control, minimize taxes, and protect your assets while still ensuring an effective transfer of property after your passing.
I hope you found this helpful. I’d love to hear from you, so please feel free to reach out for a personal consultation. My contact details are in the description below.
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