Have you considered adding your adult children to the deed for your real estate? Many parents and guardians think this will be a good way to transfer their real estate to their children upon their death. Though adding children to your deed may seem like an appealing idea, there are several important considerations to take into account.

By adding another person to the deed for your real estate, you’re giving them an ownership interest in that property. This means that they’re entitled to the “bundle of rights” associated with property ownership, including the rights of possession, control, exclusion, enjoyment, and disposition. When they were children, it may have been “my house, my rules,” but making them a co-owner makes it “our house, our rules.”

Additionally, you run the risk of litigation if you, as co-owners, cannot agree on how to use or dispose of the property. A Petition to Partition seeks to divide jointly owned property to create multiple, individually owned properties. When the court cannot physically divide the property without significant inconvenience or prejudice, it can order that the property be sold. The proceeds would then be divided among the co-owners, or one owner or a group of owners would be ordered to purchase the other’s interest.

There are also several tax implications to consider, namely capital gains tax, gift tax, and estate tax. Regarding capital gains tax, when assets are inherited (rather than received as a gift) a stepped-up tax basis is generally applied. This means that the tax basis for a real estate asset your children inherit will be “stepped-up” to its fair market value as of the time of your passing. By contrast, gifted assets retain their tax basis from when the children receive the gift. This is significant, because the stepped-up basis that comes with inheriting real estate could significantly reduce your children’s capital gains tax liability.

For these reasons, many clients prefer to transfer their real estate to a revocable trust. In this situation, the children would inherit the property after their parents’ passing, rather than being gifted an interest during their parents’ lifetime. Of course, we always recommend discussing specific estate planning questions, such as adding children to your deed, with your accountant as well as your attorney.

Navigating your estate planning can be a difficult and daunting task. Wescott Law’s experienced attorneys can assist you with your personal needs and goals. Contact us today at info@wescottlawnh.com or (603) 524-2166.