Deeding Home to Children to Avoid Probate? What can go Wrong?
I am occasionally asked if it will work to just deed one’s home to the children to avoid probate.
Short answer is “Yes, but . . .”
It will avoid probate. But there are some significant downsides.
First, the parents no longer owns the home. If there later develops a schism between the child and the parents, the child can kick the parents out and sell the home even while the parents are still alive.
Second, if the child ends up with creditor problems, the child’s creditors may be able to force the sale of the home and take the equity in the home, even while the parents live there. Again, the parents end up out on the street.
Third, there is a good chance that the parents will lose their homeowner’s exemption which will raise their property taxes by as much as $1,000 per year.
Finally, gifting the home to the child while the parents are still alive may create a very large tax liability when the child sells the home after the parents pass away. But if the child instead inherits the home from the parents under a Will or under a Family Trust, the potential taxes are minimized or eliminated outright.
On balance, it is rarely a good idea for parents to deed a home to a child while the parents are still alive. The unintended consequences of this can be catastrophic.