Lots of readers had follow-up questions to a column in which experts said it may not be a good idea to add the names of your children (adult or underage) to the deed of your home.
Here are some of those questions, plus answers from two lawyers who specialize in estate planning and real estate:
Question: A couple of years ago, my mother and her husband added my nephew – now age 16 – to their deed. The house has no mortgage. My mother realizes this wasn’t a wise move. She wants to reverse it but was told it would cost about $1,000 and that my nephew would need a court-appointed representative. Is this true?
Answer: “This is one of the reasons why one should almost never put a minor (a person under 18) on the title to a property,” said Arthur Konopka, a Washington, D.C., attorney. Konopka said when the minor became part owner of his aunt and uncle’s property, that portion of it (probably one-third) became truly his. Since he is under the age of legal majority, he is not legally able to sell or give back his share of the property. As a matter of fact, the mother and husband cannot sell or refinance because each of those events would require a signature by the nephew. Since the nephew cannot act for himself, someone has to be appointed to act on his behalf and to protect his interest in the property (and it will probably cost more than $1,000, Konopka said).
Question: Can I register my two daughters as third and fourth owners of our house to avoid paying a future lien from a bill collector?
Answer: Whatever portion of the house is not transferred to the daughters could still be reachable by a parent’s creditor, said Lou Hamby, a real estate and estate-planning attorney in Palm Beach, Fla. “Additionally, creditors of the new owners could now attack their interests.” Also Hamby said any transfer made with the knowledge that creditors were looming could be set aside as a fraudulent conveyance, depending on the circumstances.
But Konopka points out that much depends on the way the house is titled. Since the reader said “our,” she may have been thinking about the unique status a husband and wife have if they have taken title to their property as “tenants by the entirety,” he said. If the parents of the two daughters own the property under a tenancy by entirety arrangement, the bill collector cannot attach any portion of the real estate unless the debt is owed by both husband and wife, Konopka said.
Question: Isn’t it true that when you add children to the title of your home you might be deeding to them a big capital gains bill? However, if they inherit the property, they can use the value of the property upon a parent’s death as their own stepped-up cost basis. Right?
Answer: That’s right. When someone inherits property and then decides to sell it, they pay capital gains only on the amount by which the property has gone up in value from the date of death, Konopka said. For example, suppose a couple bought their home for $20,000 in 1955. The home is worth $300,000 at their death. An adult son inheriting the property gets it with a fair market value of $300,000. If it is immediately sold, there is no tax because there has been no gain. But if the son’s name is added to the title before the parents’ death, he doesn’t get the full stepped-up value.
Question: Do you have to record a deed for it to be legal?
Answer: An unrecorded deed can be legal, both Hamby and Konopka said. However, there is an important condition. Let’s say a mother deeds her property to one child, and that child never records it. If the mother later changes her mind and deeds the property to another child or to someone else who had no knowledge of the first deed, and that person records the deed, the second deed holder would most likely be the owner of the property, Konopka said.
Question: Isn’t it possible parents might transfer title to their property to their children to qualify for Medicaid?
Answer: Many such transfers are made with a view to ensuring Medicaid eligibility, Hamby said. “But a qualified attorney dealing with Medicaid issues should definitely be consulted,” he said. “This area is too risky for a novice to dabble in.”
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It’s time for the Color of Money “Honey, I Need Some Money!” contest.
Valentine’s Day will be here soon, and nothing says love like an argument about money. So, write and tell me about the funny or frustrating ways you and your partner handle your finances.
Your entry may be used in an upcoming column, so it should be suitable for print (in other words, nothing that’s going to wind up as evidence in divorce court).
Send in your entries by Feb. 14, and please include your name, address and daytime and evening phone numbers.
Winners of the contest will get a free financial consultation with a professional financial planner.
E-mail your entries to color ofmoney@washpost.com. In the subject line please put “Honey, I Need Some Money Contest.”
And even if you don’t want to go public about your financial problems, tell me how you and your sweetie manage your money together.
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