The Hidden Pitfalls of Adding Children to Property Titles

The Hidden Pitfalls of Adding Children to Property Titles

We here at Bethel Law want to warn folks about a common practice many parents adopt in hopes of financial convenience: adding their children's names to their property titles without seeking proper legal advice. It may appear as a cost-saving method initially, but it could lead to considerable financial and legal repercussions in the future.

The True Cost of Putting You Children on Title

While many parents believe they're securing their children's futures or saving on expenses, they might be unknowingly jeopardizing their financial wellbeing.

Disadvantages to Children

Capital Gains Taxes: Transferring a property title to a child equates to gifting them part of the house. Consequently, this can expose them to capital gains taxes when they decide to sell. A more tax-efficient approach? Let children inherit the property. An inherited property benefits from a "stepped-up tax basis," potentially reducing or even eradicating capital gains tax liabilities.

Higher Property Taxes: When properties change hands, they're open to reassessment. In states like California, this frequently results in an increase in property taxes. Misunderstandings about residency requirements further exacerbate this issue, leading to unforeseen tax hikes.

Liability and Cooperation Issues: Co-owning property means sharing liabilities. Legal issues faced by one titleholder could jeopardize the property. Additionally, unanimous agreement becomes essential for all property-related decisions.

Risk of Incorrect Procedures

Ambiguity in Vesting: Many parents are unaware of the nuances between joint tenants and tenants in common. This distinction is crucial as it impacts the inheritance process and could lead to lengthy probate court involvements.

Transfer Proportion Concerns: Misunderstandings in the transferred ownership percentage can further complicate matters, leading to potential disputes and probate court interactions.

The Importance of Professional Consultation

Bethel Law has witnessed numerous instances where parents, in their bid to simplify processes, inadvertently complicate their estate situations. Attorney Andrew Bethel's advice is clear:

1. Avoid adding children to titles without due consideration.

2. Consult with an estate planning attorney to understand the potential implications.

Key Takeaway

While rectifying such title mistakes may be profitable for estate planning attorneys, it's undoubtedly a burden for families. One potential solution is the creation of a living trust. Nonetheless, if parents still wish to add their children to their property titles, it's imperative to do so with proper legal guidance.

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