The Hidden Risk of Adding Your Child to Your Home's Title

At first glance, adding your son or daughter to the title of your home might seem like a smart and simple way to avoid probate and ensure a smooth transfer of ownership after your death. Many parents assume that making their child a co-owner is an efficient form of estate planning. However, this seemingly straightforward move can carry serious legal and financial consequences—many of which are irreversible.

Here are the most significant pitfalls of adding a child to your home’s title:

1. Loss of Control

Once you add your child to your home’s title, you are no longer the sole owner. Any future decisions—such as refinancing, selling the property, or taking out a home equity loan—will require your child’s consent. If your child disagrees or becomes uncooperative, you may find yourself unable to act freely with your own property.

2. Exposure to Your Child’s Liabilities

Your child’s financial troubles can become your problem. If your child is added to the title and later experiences bankruptcy, divorce, or is sued, their ownership interest in your home could be subject to creditor claims, divorce proceedings, or legal judgments. You could be forced to sell your home or buy out their share to protect it.

3. Unintended Gift and Tax Consequences

When you add someone to your home’s title without receiving money in return, the IRS considers it a gift. If the value of the gifted share exceeds the annual gift tax exclusion ($18,000 in 2024), you’ll be required to file a gift tax return. While you may not owe gift tax immediately, the transfer could eat into your lifetime gift and estate tax exemption.

Additionally, your child could miss out on a significant tax break known as the step-up in basis. If your child inherits the home at your death, they receive a new cost basis equal to the property’s fair market value at that time. However, if you add them to the title during your life, their cost basis is tied to what you originally paid for the home. This could lead to large capital gains taxes if they later sell the property.

4. Medicaid Eligibility Issues

Adding a child to your home’s title can be viewed as a gift for Medicaid purposes. If you need long-term care within five years of the transfer, the state may impose a penalty period during which you are ineligible for Medicaid benefits. This could put your finances—and your care—at risk.

5. Family Disputes and Unfairness

While your intention may be to simplify things, adding only one child to the title can create resentment among siblings or other heirs. Your other children may feel cheated or confused about your wishes, especially if your estate plan doesn’t clarify your intentions.

A Better Alternative

Instead of adding a child to your home’s title, consider using a revocable living trust. This legal tool allows you to retain full control over your property during your lifetime while ensuring a seamless transfer upon your death—without probate, tax complications, or jeopardizing Medicaid eligibility.

Before making any changes to your home’s title, consult with an experienced estate planning attorney. What seems like a shortcut today could lead to unintended and costly consequences tomorrow.