Tuesday, October 14, 2008

House Deeds and Children

In the past week I have had two clients ask me if they should add their child to the deed to their home so that they’ll inherit it when they die. Of course, the answer is it depends. But here are a few points I told them to consider when evaluating the option.

First, if they already have a will or a trust ownership of the home will transfer according to the terms of the will or trust. In both cases the client’s wills gave the property to the children.

Second, adding a child to a home’s deed equates to giving the child(ren) a gift. If the gift is worth $12,000 or more, then the parent will be responsible for a gift tax.

Third, in Wisconsin a transfer fee would be owed to the Department of Revenue at the time the child(ren) was added to the deed.

And forth, gifting property transfers the parent’s cost basis to the child. If the property were inherited by the child the child would receive a step-up in cost basis, most likely minimizing future capital gains taxes the child would own if the property were sold after they took ownership.

After considering these points, neither client opted to add their child to the deed to their home. Curious as to why this question was coming up (after the will had already been done), both indicated that the idea had been posed to them by a title company. My guess is that in the slowing real estate market some companies are looking to drum up business. And if they are trying to push you into something, they are likely selling something you don’t need. As always, seek counsel from a neutral party before taking action.

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