It’s your home. You might wish to add another person—perhaps an intimate friend or a family member. Doing this is a relatively simple action. And you have the right to do it.
Still, be sure to consider the unintended consequences. However well-intended your desire to bring a loved one onto your real estate deed, the conveyance is fraught with risks and potential frustrations. Be aware that:
- A deed that conveys an interest in your real estate ownership (“adds someone on”) has the legal effect of giving that additional person the same bundle of rights to which you are entitled.
- Once the conveyance happens, it cannot be undone except with that other additional owner’s consent.
Consider the following aspects carefully.
Death and Taxes: The Estate Planning Pitfalls of Adding Children as Co-Owners
Some homeowners ask if they can convey an ownership interest in real estate in order to avoid probate. But if you add another person to the title while keeping your own interest in your property, the title will stay under the probate court’s purview.
Meanwhile, by adding the child to your deed, you made a gift for tax purposes. At the time of this writing, a gift to someone other than a spouse worth more than $15,000 in a single year can incur gift and inheritance taxes. (The IRS provides details here.)
Moreover, your child will be taxed on capital gains later, assuming there’s appreciation of the property value. And the child will miss out on the “stepped up” cost basis that an heir would get, which usually wipes out potential capital gains taxes.
If you pass on, and your surviving child is named on the home deed, the child is under a legal disability. Children under 18 lack the capacity to sign binding contracts in most states. This can tie up the property in unintended ways. Say, for example, your surviving spouse needs to sell the home. A court might have to step in and name an independent guardian to defend the child’s legal interests.
Your Home’s Exposure to Financial and Legal Liabilities
A monetary judgment against the additional title holder can put the home at risk. An interest in your home could be reachable by your co-owner’s creditors.
Even if you mean to convey just a fraction of your interest in the property, you lose control. The new co-owner will have full control of that portion of the property. In certain circumstances, your co-owner might have the right to compel a sale of the house.
The deed can be created to include restrictions on further conveyances. Yet burdening the property title is likely not what you have in mind when offering a loved one the interest in your parcel.
Stranger things can happen, too. Sometimes, a co-owner predeceases the gift-giver. The co-owner then leaves shares of the real estate to yet another party. This can leave the person who gave the interest to a loved one stuck sharing a home with an unexpected new co-owner.
Even in the best-case scenario, most anything major you want to do with your property will now need another person’s permission. Again, probably not what you have in mind when you give a loved one an interest in your home.
We’ve all lived and learned, and know that relationships with loved ones can change over time. Should your relationship with the co-owner sour, you could be stopped from doing anything major with your home unless you’re willing to deal with a court case. For this reason, some homeowners who put significant others on the home deed prepare legally for any unforeseen changes of heart. They have a no-nuptial prepared. The no-nup governs what happens to the couple’s assets should the relationship break down.
Co-ownership and Mortgage Loans
If the home has a mortgage, the lender might require all titleholders to take responsibility for the loan. This makes sense. A person who owns an interest but isn’t on the mortgage has all the rights of a property owner, without any of the financial duties.
A new co-owner can, perhaps, be added to the mortgage. The lender has to agree to it. If the lender allows it, expect additional fees and costs. If your new co-owner is not a blood relative, there’s a high likelihood that the change will trigger the “due on sale” (DOS) clause that requires you to pay off the mortgage fully when you decide to convey an interest in the property.
But say your home does not have a mortgage. In that case, it can be security when you need to depend on its value for a reverse mortgage loan. Another person’s name on the home title will complicate your loan application.
Efficient, Low-Risk Alternatives to Transfer Your Ownership in Real Estate
Increase efficiency without undue risk. Consider:
- A revocable living trust. You can convey your property into the trust on behalf of another person. In legal effect, you now do not own that property. It belongs to the trust. If you convey everything this way, your whole estate is freed from probate. You can revoke the trust if you later change your mind on who should get the property.
- A transfer on death (TOD) deed. Here’s a way to pass the interest in your home deed on—while you’re alive. Record the TOD with your county recorder of deeds, and rest assured that your loved one automatically owns your house when you have passed. It’s revocable. If your state allows it, and the home is your only large asset, a TOD deed is an excellent way to avoid probate.
Dependable Forms to Protect Your Loved Ones—And Yourself
The law of deeds and deed recording varies by state and county. Our formats comply with every detail of each jurisdiction’s rules. We include the supplemental forms a state or county recorder requires. At Deeds.com, we run rigorous compliance checks and continually update our documents.