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Wednesday, January 16, 2013

Common Question Wednesday: Should I Add Another Person (Partner or Child) to the Title of the House

Minneapolis attorney specializing in nontraditional estate planning answers the question of whether an individual should add his/her unmarried partner to the deed to a home

As an estate planning attorney specializing in nontraditional estates, I get a lot of questions specific to situations that may not normally be heard as often by one of my more "traditional estate planning" colleagues. I've decided to begin a new monthly post entitled "Common Question Day" to respond to some of these questions.

First up is the most common question I am asked by unmarried couples and seniors looking to make things easier on loved ones.

QUESTION: SHOULD I ADD SOMEONE TO THE DEED TO MY (OUR) HOUSE?

ANSWER:

While I hear this question most often from couples who are not legally married, the answer remains the same for anyone - outside of a legal spouse - considering whether to add another person(s) to a deed to the home. This means that the answer applies to parents considering adding a child, a person wanting to add a sibling or even a friend.

The short answer is that I do NOT recommend adding another person to the title to your home.  This is so for the reasons listed below:

     1.    Lender Consent. If the property is encumbered by a mortgage, the first issue to consider is whether adding another to the deed will violate the terms of your loan documents.

     2.    Liability and Asset Protection. Joining someone else as a co-owner of your property may expose that property to the claims of your co-owner's creditors.

     3.    Loss of Control. As the sole owner, you have absolute control over the property. For example, you alone have the right to decide whether to sell it, and at what price, whether to refinance, take out a home equity loan, and what improvements should be made. However, once another person acquires an ownership interest you will also need their consent in all these matters.

     4.    Gift Tax Consequences. Under the current IRS rules, a person can give away a fixed amount of money or property per person per year ($14,000 in 2013). Any gift exceeding this limit may require the donor to pay gift taxes. If you give an interest to another rather than selling the share at fair market value, it may trigger the requirement to file a gift tax return so you should consult with a tax professional.

     5.    Capital Gains. A transfer by deed during the donor's lifetime (instead of by a Will upon death) can have other adverse tax consequences. If you leave the land to someone in a Will, the heir receives a "step up" basis. This means that when the heir eventually sells the property, capital gains taxes are computed based on the value of the property at the date of your death--not when you originally purchased the property. Since land usually increases in value over time, the "step up" basis reduces capital gains taxes. However, if you make a gift of that same property during your lifetime, there is no "step up" basis; rather the basis will be the same as yours and can trigger increased taxes.

     6.    Medicaid Eligibility. Transfers of property may also affect Medicaid eligibility. This topic is much too complex to cover here, but suffice it to say that unless you make the transfer more than five years before filing your Medicaid application, you may be disqualified for Medicaid assistance.

If you are thinking “should I add someone to the deed to my house” please stop and consider the above and speak with an attorney and tax professional before making any changes to the title. An important question is, "What issues do I need to address before deciding whether to add someone to my deed?" It may not be possible to fully resolve all the potential problems associated with co-ownership of property, but a skillful legal professional can at least help avoid unpleasant surprises in the process.


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From within Hennepin County Unique Estate Law represents estate planning and elder law clients throughout Minnesota, including Minneapolis, Edina, Bloomington, St. Louis Park, Minnetonka, Plymouth, Wayzata, Maple Grove, St. Paul, and Brooklyn Park. The Minnesota law firm of Unique Estate Law focuses on all aspects of estate planning, including specialized wills, trusts, powers of attorney and medical directives for married couples, young families, blended families, single parents, gay families and those going through a divorce. Unique Estate Law also handles probate administration, asset protection, Medical Assistance planning, elder law, business succession planning, adoptions and cabin planning.



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