They call it the “poor man’s estate planning.” Put your child on the title to your deed and avoid probate. Yet this “poor man’s” planning often ends up, well, poorly; and costing a lot more for the people you love. Here’s why and what you can do about it:
Risk #1 of Poorman’s Estate Planning: If the deed is titled with the name of parent and child (or any time there is more than one name on title and the parties are not married to each other) ownership of the property could be categorized as tenants in common – meaning that if one property owner dies, his or her interest in the property goes to an heir via probate, not directly to the other owner(s). That’s exactly what the poorman’s estate planning was trying to avoid.
Solution: To accomplish the desired objective, the deed would have to stipulate ownership as joint tenants with the right of survivorship or similar language. Even then, passing property outside of probate using a deed may create problems because if both joint tenants die or become incapacitated at the same time (such as in an accident) the property is headed right into probate.
Risk #2 of Poorman’s Estate Planning: If the child you put on title to the property is sued or has some other type of creditor issue, even divorce, the property could be at risk.
Risk #3 of Poorman’s Estate Planning: Gifting property to your children, which is what happens when you put a child’s name on title to your property, could create adverse tax consequences. One of the benefits of death (probably the only one) is that your heirs take your property at a new basis equal to fair market value of your property. This may not happen if you’ve added your child to the title of the property if it’s determined that you made a gift of the property, your kids inherit your tax basis and lose valuable tax savings.
If you would like to learn more about strategies for protecting your assets and avoiding probate, call our office today to schedule a time for us to sit down and talk.