<p>Recently this topic came up when we were doing taxes and meeting with our financial adviser and accountant. Both kids seemed to have grown up all of a sudden in the last year and turned out to be responsible and mature. We travel a lot and plan to do even more and do worry about something happening to us suddenly. My husband had inherited his parents’ house and we are thinking of adding the kids names to the title. We have no plans to sell this place and we intend to pass it to the kids, most likely the son for sentimental reasons (he was the grandparents’ favorite and light of their lives).</p>
<p>Does anyone have similar experiences to share and are there any pitfalls ? The kids are 20 & 21.</p>
<p>If a child inherits a piece of property, his cost basis in the property is the value on the date of death of the donor.If you add them to the title while you’re alive, they assume your basis. </p>
<p>So if the house was worth, say, $200,000 when your husband’s parent died, that becomes your basis. If you add your children to the title, that is also your children’s basis. But if you leave the house to your children in your will, and if the house is worth $400,000 when you die, then $400,000 becomes your children’s basis. If they sell it for $400,000, they won’t owe any taxes if they inherit it. But they’ll be taxed on the $200,000 gain if they are already on the title.</p>
<p>I hope an accountant will jump in and correct me if I’ve got this wrong, but I think it’s correct. You should definitely speak with a tax advisor or attorney before making any changes.</p>
<p>Everything I read says don’t do this. So many things can happen. In addition to the stepped up basis issues for inheritance, they are young and may make other life plans complicating things tremendously, Put the title in trust if you are concerned while traveling.</p>
<p>^Thanks Patsmom. I was just talking to the accountant and he didn’t mention anything like this. I thought, from other sources, (could be the bank people) that properties, like joint bank accounts, have the right of survivorship. So if there are six names on the property/bank account the ownership just passes to whoever is living. </p>
<p>I wonder if there are tax consequences - my accountant didn’t mention anything when I talked to him last week, but I bet his mind was wrapped up in income tax filings right now. </p>
<p>I also wonder about human aspects of this. There hopefully will be spouses for the kids in the future. So I was hoping someone knows of or had experience with this and share their wisdom. </p>
<p>Well…if they are in college…I would imagine that they would also need to declare THEIR share of the value of this second home as an asset on the financial aid application forms. Personally, I would wait until they are college grads to do this…and I would ask THEM.</p>
<p>Another reason that this is a bad idea is liability. What if your son is in an accident, and is sued? With the house having his name added, then it could be lost in a law suit. There is also the prospect of a future spouse wanting a share of the house if a divorce happens.</p>
<p>I hope that you have your wills drawn up so that the child not receiving the house receives assets equaling the value of the house BEFORE you divide up the remainder of your estate. If not, I would suspect that there could be lots of hard feeling from the child that doesn’t receive the house.</p>
<p>My understand is that you can’t just put their name on the title without gift tax kicking in. That you can transfer a small amount of ownership each year only without a tax issue. This may be different if you just acquire the property.</p>
<p>There are no cousins. My children are the only heirs. For my kids, from us, everything including this house will be divided equally between them. Whatever we eventually do, we will make sure that our daughter understands the reasons behind our way of thinking and she will have a say. It is just that the son is older and was a part of his grandparents’ lives much more than his sister.</p>
<p>ETA: I may not be very clear about this. Our son may get this one house from his grandparents, but his sister will get another house (our home ??) as similar in value as we can make it. That’s what I meant by that our assets will be divided equally. The only concern I can see in the future is that, my son with his significant LDs, may need more help from us, but that is discussion for another day. Whatever we eventually do, the children will have input and we will take their opinions and feelings into consideration.</p>
<p>I didn’t notice this before I first posted. I would NOT do this. My inlaws treat one of my kids much more in favor than the other. I will NOT perpetuate that notion myself. Of course, this is your decision but if everything is to be divided equally between your kids…why not the house too.</p>
<p>This is a bad idea. Leave the houses as you like in your wills but do not add the children’s names to the title. Too many things can go wrong. What if everything’s fine now but someone marries a person who isn’t exactly honest or falls under the influence of someone or something pernicious? What if you need to sell the house for some reason (medical costs or to take up an different opportunity) and one person doesn’t want to sell? Then you’ve got to go to court. The house should be in the name of the spouses and nobody else. You’ll save yourself a world of trouble and ill-feeling. Almost every time I read a ‘real estate advice column’, there’s a horror story about putting other people on the title, whether girl/boyfriend, child, or loan-offering neighbor. </p>
<p>This is aside from the ‘stepped-up’ tax cost which patsmom explained.</p>
<p>There is a time when it can be beneficial change a deed and that is when only one parent is living. I do not remember the type of deed but basically the original owner is free to do whatever they want with the property but on death it automatically becomes the property of the 2nd person. We did this on the advice of an attorney who specializes in elder law and many of our friends have done the same when they lose one parent.</p>
<p>^Very interesting. I am not sure how it works. Can you give an example ? </p>
<p>However, in our case that property only has one name, my husband’s as he was the heir though we did live in it as a matrimonial home for a short time long time ago. Don’t know if he can add a spouse’s name now. Besides, we are worried about our travels and that something bad happens to both of us. </p>
<p>I am very surprised the accountant did not mention about step up cost basis mentioned here. The accountant did say to protect the asset/house from divorcing future spouses - a promissory note from the children, or charge, null and void upon our demise can be set up at the same time, same as the value of the property. </p>
<p>We consulted with a lawyer way back then and wanted to set up a trust. Seems like our affairs are so complicated, spanning in and out of country assets that the lawyer, after two consultations, dropped us (never got back to us). :(</p>
<p>Munchkin – I don’t think it would be very difficult to put your name on the title (guess it depends on where you live.) But it would be a protection for you to have it there as, in most states, the other name on the title automatically receives the house if the other person dies. Might save you some worry down the road.</p>
<p>I hear you about different country assets. It can be difficult even when you hold assets in different states. My fil had property in 3 states when he died and the lawyer bills were b-i-g!</p>
<p>If there were many potential heirs, I’d say putting kids’ names on the title would be a bad idea. And yeah, it’s possible that future inlaws may cause some trouble. But the OP makes clear that the two children are the only heirs, and that the two houses aren’t the extent of their resources. So … based on my (continuing) experience trying to settle my mother’s estate, I say that what the OP suggests could be preferable to passing a largish estate through Probate.</p>
<p>As prior posters have said, you need a lawyer who is experienced in this arena to assist with your wishes. Good luck.</p>
<p>From what we were told by an attorney, the proper way to do this is to set up a trust, throw all of the assets into the trust and then have your kids be the heirs of the trust. Things are likely to change next year with the expiration of a bunch of tax laws - and I would definitely think that an attorney is the way to go here.</p>
<p>DH and I have had a trust since before the kiddos were born with our 1st starter house. It’s been updated and expanded many times since, but is a terrific investment even with modest assets. It wasn’t expensive. (No kidding, we got the first one w/ a coupon from the Penny Saver. Later, DH’s employer would pay for financial planning so we went to the best estate person in town who didn’t really change much from the boiler plate one.)</p>
<p>In our case it was done to avoid probate, so it would depend on how your state handles property in one name only when the owner dies. However, where we live, if the property were to be sold by the main owner under this type of deed the owner would have to declare the entire proceeds as capital gains, so when my dad decided to sell the property we changed the deed back to a sole owner (him) to avoid the capital gains (and prayed nothing happened to him before settlement). As I said we did this based on our attorney’s recommendation and the laws and regulations in our state.</p>
<p>I assume that you’re planning to live a long time. Given that, it seems that it would be highly risky to give equal ownership to the kids. You never know what might happen. Just a few scenarios have arisen so far that are all pretty negative (accident, lawsuit, divorced spouse, bankruptcy). It seems it would be a lot of safer to set up a trust and have a good will. </p>
<p>When FIL died (no will), H inherited his half of parents’ estate. To avoid problems with house, MIL gave my H full title to the house in exchange for all liquid assets with the right to stay in the house as long as she lives. She is responsible for taxes, insurance, repairs, etc. on the house, but it will be his with no inheritance taxes, probate, etc. upon her death.</p>