Should I Put the Kids on Title? NO!

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That’s the worst idea ever!

I hear it all the time. “We have 2 grown kids. We are getting older. we want to put the kids on title to our home.” Why does this happen so often? What is the problem? Here is an example:

Dad died. Mom is alone and feeling mortal. She has 1 child: a grown Son. He is a good Son. Attentive. Caring. Helpful. If Mom puts him on title as a Joint Tenant, when Mom dies Son automatically inherits without Probate.

Why is this a terrible idea? What can go wrong?

Son, now an owner, can:

• voluntarily evict Mom;
• force sale of the property; or
• take other adverse actions.

When I explain these risks to a client, the answer invariably is: “MY son would NEVER turn against me. He is wonderful and would never voluntarily hurt me.” But what about involuntary actions? Such as:

• What if Son is DIVORCED and his ex-wife ends up owning a part of Mom’s house. The ex HATES Mom. (For years she heard how much better a cook Mom is.) The ex-wife does some of those voluntary nasty things.
• What if Son is SUED (for a business / personal problem) and then Son’s creditor seizes Son’s half of Mom’s house?
• What if Son DIES and leaves his half to his Wife?
• What if Son has an IRS lien?

All of these issues are potential danger points for Mom. But, what is the benefit for Mom? Nothing, unless she dies. Mom’s death was the whole point of putting Son on title in the first place: to avoid Probate when Mom dies. The better way to avoid Probate with no risk to Mom is a Living Trust. Obviously, if Mom has 3 kids, and puts all of them on title the risks are tripled.

My Grandfather was a lawyer. When I started practicing with him in 1980 he warned me about this issue. Clients would come to him to put the kids on title. He warned them against it. He felt so strongly that if a client insisted on doing it despite his counsel, my Grandfather refused to assist. He sent them away. “If you don’t like my advice and want to do it anyway, get someone else to help you. I won’t be a party to this mistake.”

Personally, I advise clients the same, but if a client insists, I will not send them away. I am not surprised when clients do not listen. I figure after I cover my rear by putting these warnings on paper and having them sign a consent, they are entitled to make their own decisions.

After my Grandfather’s death, my Grandmother asked me if she should do the same thing! I told her exactly what her own deceased husband told his clients all of his life: Don’t do it! She did. And nothing terrible happened. But with no-risk alternatives (Living Trust), why do smart, intelligent, people who know better continue to do this? Because it cannot happen to them!

I’ve seen this personally with two different clients. In one case the child had to file for bankruptcy which affected their 50% ownership of the Mother’s home because Mother insisted on putting the daughter on deed rather than doing a Living Trust. The other client had a business go under and is being sued for $200,000,000. What does this mean for the 50% of his Mother’s house? Nothing good.

Also, something to consider is the gift tax issue. A very interesting issue about putting the kids on title is whether a gift has been made with gift tax consequences. If Dad deeds his home to Dad + 3 sons as Joint Tenants, and the house had equity of $100,000, did Dad make a gift of $75,000? Or was no gift made because it is merely a paper transfer: it is still Dad’s house and the kids don’t really own it. These issues must be examined.

If you have any questions email me at marcw@wwlaw.com

*In accordance with Treasury Regulations Circular 230, we are obligated to inform you that any tax advice contained in this communication was not intended or written to be used, and cannot be used, for the purpose of avoiding tax-related penalties under the Internal Revenue Code or applicable state or local tax law provisions.*