The Disaster of Deeding the Home to Children
In an effort to avoid probate, some parents consider deeding their home to their children while they’re still living. But for most people that is a solution that may create more problems than it solves.
So, what can go wrong? Let me count the ways.
First, the parents no longer own the home after the deed is made. So, they will lose their homeowner’s exemption on their property taxes. That loss of that exemption can, in just a couple of years, end up costing more than the probate would have cost.
Second, since the parents no longer own the home, their children’s creditors can force the home to be sold to pay the children’s debts. The parents could end up being “evicted” from their own home by their children’s creditors while they’re still alive.
Third, if a falling out occurs between the parents and the children, the children legally will have the right to sell the property even while the parents are still living. And even without a schism arising, the children will also have the right to borrow against the home while the parents are living which may create a risk of the home being foreclosed if that loan is not repaid.
Finally, the choice to deed the home to the children, rather than leaving it to them under a Will or Family Trust, will most likely increase the taxes which the children will owe when the day comes that they sell the home. And in many situations those taxes will be increased by tens of thousands of dollars – far more than the cost of the probate might have been.
In the final analysis, parents should be extremely cautious about deeding their home to their children as a vehicle for “avoiding probate.” The risks are simply now worth the rewards.