Invited to put your name on the deed to a home? It might seem totally natural to just say “thank you.”
But stop and think a moment. If you accept a new deed, perhaps a quitclaim, with your name added on, you’ll put her, and yourself, at a financial disadvantage.
Protect Her Interests. Just Say No.
If you go onto the deed, you get a new responsibility. If you experience relationship changes or financial challenges — who doesn’t? — other parties might become positioned to make claims on your mother’s home.
In any case, your mother will need your agreement and signature for anything she wants to do with the home. Say she needs extra funds, and decides to apply for a reverse mortgage loan. Now, she has to offer up your financial details as well as her own.
And if the regular mortgage is still on the property, the mortgage servicer could view the title change as it views a sale. The lender may insist on refinancing the home, so that you, as the new co-owner, take on financial responsibility. From the mortgage servicer’s perspective, any person who owns an interest should also take on the duty to repay the property’s debt. So you’ll likely need to be vetted as a mortgage holder. Expect to spend time and fees in the process.
Anticipate the unlikely scenarios too. For instance, can you be sure you’ll outlive your parent? If she outlives you, and you’re on the deed, your mother would need to accept your heirs as co-owners.
One more thing… Adding someone to a deed is a gift. So do read up on gift taxes and exclusions.
All told, joining your parent on her home’s deed is much more complicated than it first seems. You and your mother might want to weigh the key alternatives.
Protect Your Tax Advantages…By Waiting.
If you wait and accept the ownership interest after your parent passes on, you will receive an important tax break. That’s the “stepped-up” cost basis due to a transfer at death.
When you ultimately go to sell it, all the gains your mother earned in property value, simply by living in the home as it appreciated, are tax-exempt.
☛ Despite the ebb and flow of real estate markets, real estate is an investment that’s proven to grow in value. Get a feel for the growth of U.S. home values over generations, with the FRED Economic Data graph.
Maybe your mother hasn’t considered the tax consequences. She simply might think you’ll have an easier time of taking over the ownership later if you don’t have to involve the probate court. And that’s a totally understandable concern.
But if your mother adds you to the deed while holding onto an interest in the property, the title will actually go into probate for distribution.
☛ Planning to co-own a home? Then vesting your deed in a way that suits both/all owners’ goals is important.
Parents Have Other Ways to Transfer Homeownership.
A parent who wants to give you the home could consider these ideas instead:
Creating a Life Estate
Your mother could consider a life estate. This option could make sense if she wants to stay in the home for life, yet pass legal ownership to you at death. Homes deeded as life estates are part of a taxable estate yet they do not have to go through probate. You will only need to file the death certificate and the original life estate deed at the county recorder of deeds’ office. Then you’ll get the title.
During your mother’s lifetime you’ll be co-owning the home. Your mother will manage the home for life, getting all applicable tax breaks. Then you’ll get the “remainder” interest. That is, as noted above, the title will be yours after your mother passes on. Here again, this will only work as intended if you outlive your mother.
Using a Will
Does your mother have a Last Will? That’s important for distributing possessions, which can include a home.
A will isn’t a complicated tool, and it does not need to be recorded. Yet it can transfer a home in a legally sound and straightforward way. You get a deed that’s certified by your county probate court. And that valuable tax break through a stepped-up cost basis? Using a will is a perfect way to ensure you’ll benefit from that.
Using a Revocable Trust
Another alternative is for your mother to see an estates and trusts lawyer, and have a living trust set up for her home. Trust property avoids probate. During life, your mother’s in control. She has the option to revoke the trust if desired. If she keeps the home in the trust, she’s ensuring that the named beneficiary (in this case, you) will receive the property.
The beneficiary of trust property receives the stepped-up cost basis, so you will be free of the tax on your mother’s capital gains over the years.
Creating a trust is more complex than writing a will — but it means the plan is in place for the home. No need for probate later.
Using a Transfer on Death (TOD) Deed
Is your mother’s home in a state that allows transfer on death deeds to avoid probate for real estate? If so, then the TOD deed could be the easiest solution. She can sign and record the document with the county, as a declaration that she is passing her ownership along to you — effective upon her death. Your mother has the future prerogative of revoking a TOD deed through a new document that is recorded with the county recorder. Selling the home is another way to revoke the TOD deed.
Does the TOD deed skip probate? Yes, it does. Like a will, though, it can be contested in probate court. So, it’s good if you both know that key relatives and other close associates are on board with the choices your mother is making.
The TOD deed has to be recorded to be valid. After death, the recorded TOD deed does its work automatically. You receive ownership without the need for a probate court — as long as the home isn’t needed to pay off any debts your mother’s estate might have.
Note: Check state law; there will be a certain time during which creditors of a deceased person can still make claims.
And Just a Few More Things to Keep in Mind…
If you do agree to come onto the title, do check with the relevant insurers and the mortgage company, if any. Make sure that your mother’s policies and accounts will not be adversely impacted by the deed change. Also check for any potential impact on your mother’s government benefits and entitlements.
Your mother might wonder: “Do I need a lawyer to create a deed?” No; a homeowner may draw up documents to transfer her property herself. We do recommended consulting a lawyer in the state where the property is located, as experienced lawyers ensure real estate documents are properly drafted and processed. An attorney’s knowledge can help lower the risks posed by future claims and challenges.
U.S. Internal Revenue Service via IRS.gov: Frequently Asked Questions on Gift Taxes (page last reviewed or updated on May 31, 2023).
Aaron R. Shahan, Atlas Law, PLC (Michigan): Is Putting Your Children on Your Deed or Bank Account a Good Idea?
Deeds.com: The Transfer on Death Deed: Is It Always Simpler Than Probate? (Apr. 24, 2023).
Deeds.com: Should Your Child’s Name Be on Your House Deed? (Oct. 13, 2021).
Deeds.com: Adding Someone to Your Real Estate Deed? Know the Risks (Feb. 19, 2019).
Deeds.com: Adding a Person to a Deed Using a Quit Claim Deed (Oct. 26, 2012).
And as linked.
Photo credits (both): Elina Fairytale, via Pexels.