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By Diana Wade
LDA 

Add a child to your home

Ask the LDA

 

February 3, 2024

Diana Wade.

I get calls all the time from a parent that wants to add their child to their home. Typically this is done to avoid probate. I looked a several articles on the internet and this is what I saw.

Adding an adult child to your house deed, or giving them the home outright, might seem like a smart thing to do. It usually isn't.

Transferring your house to your kids while you're alive may avoid probate, the court process that otherwise follows death. But gifting a home also can result in a big, unnecessary tax bill and put your house at risk if your kids get sued or file for bankruptcy.

If you bequeath a house to your kids - which means they get it after your death - they also get what's known as a "step-up in tax basis." All the appreciation that happened while you owned the house is never taxed.

i.e. The mother paid $16,000 for her home in 1976, while the current market value is close to $200,000. None of that gain would be taxable if the son inherited the house.

The mother signed a quitclaim to give her son the house anyway and died shortly afterward. That potentially meant a tax bill of about $32,000.

Sometimes people transfer a home to try to qualify for MediCal, the government program that pays health care and nursing home bills for the indigent. But gifts or transfers made within five years of applying for Medicaid can lead to a penalty period when seniors are disqualified from receiving benefits.

Transferring your home to someone else also can expose you to their financial problems. Their creditors could file liens on your home. In a divorce, the house could become an asset that must be divided. If the child has an IRS lien it may attach to the property. And then there's bankruptcy. If your child filed bankruptcy, the bankruptcy court may be entitled his or her share of your home. Remember, by placing their name on your home you are gifting them a share of the property. As a result, your child's share of your home may be sold to satisfy his or her debts.

There used to be a time in California where you could add your child to the deed of the home and it would not affect your property taxes (Prop. 58). However, for any transfers after February 16, 2021, adding your child to the deed will cause a change in ownership and will trigger a reassessment.

Check out http://www.boe.ca.gov/proptaxes/faqs/propositions58.htm for exclusions.

Everyone's circumstances are different. This article is not legal advice. Consult your own attorney or CPA for legal and/or tax advice.

Diana Wade is a Legal Document Assistant. She can be reached at (661) 821-0494 or dianapwade@yahoo.com. Diana is not an attorney; she can only provide self-help services at your specific direction. Kern County LDA #185, ex 4/11/25.

 
 

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