One of the most common techniques in “poor man’s estate planning” is a parent adding kids as co-owners on title to the home. On its face it makes sense: you want your kids to receive the property when you die, so adding them to the deed guarantees that will happen. Unfortunately, a lot could go wrong.
Creditor Protection Risks in Sharing Title with a Child
From an asset protection perspective, you are taking on your child’s creditor issues by exposing your home. Let’s say a credit card company successfully sues your child for non-payment on a delinquent account. The easiest asset to levy the judgment against is real property. A quick search online will show your child as a co-owner on your house and that’s the first place they’ll go. Perhaps you are able to argue it away by showing you have made all the payments and your child was only on title for estate planning purposes. Even if you are successful, you’re looking a thousands in attorney’s fees, not to mention time and stress to get there.
Then there is the possibility of a relationship going sour. An attorney contacted me this week to seek advice on dealing with such a situation. A parent reconnects with an estranged child. Their bonds grows for years. Parent adds child to title of parent’s home because child will get the house anyway after parent’s death. Eventually the relationship becomes fractured. Parent has a new plan for the home, but now must get child to cooperate to take title back. Child has other plans and is now seeking a cash buyout.
Revocable Trusts Resolve Succession Issues Without Jeopardizing the Asset
Of course such a situation is rare and probably unlikely to happen to you, but why leave such critical planning to chance? A trust resolves all these issues. Your child will receive the home, free of probate, without jeopardizing title along the way. In addition, you’ll be able to plan for bank accounts, investments funds, vehicles, personal property, and everything else you own.