One might think that adding a loved one’s name to their deed is a good idea. Whether it is an elderly parent adding an adult child in an attempt to simplify the probate process or a couple in a new
relationship trying to show commitment, the truth is: it may not be a good idea.
When you add someone’s name to your deed, you are giving away part of your asset, forever.
A house is an asset that creditors may use to satisfy unpaid debts.
Legally, adding someone to your deed will allow the asset to be used to
satisfy debts of that person, like unpaid credit card bills, court judgments and others. Although your loved one may be in good financial and legal standing currently, the situation can change in an instant. A bad car accident, a sudden layoff, and other endless possibilities exist. The reverse is also true – your own misfortune could put at risk your co-owner’s residence.
You are also taking a risk with your personal relationship. Your
loved one may have a change of heart and find someone else; would you want them to take part of your assets in addition to breaking your heart? I doubt it. Additionally, even if the relationship is sound, other complications can threaten your asset and financial situation.
If others are listed as co-owners on the deed, refinancing requires
their agreement and depends upon their credit score. This could have a dramatic impact on the loan terms made available to you, even if you have great credit. A bad situation for them could turn into a
bad situation for yourself.
If you decide to sell, the co-owner would have to sign most of the important documents, such as the listing agreement, sales contract, deed, and others. That gives your co-owner a lot of leverage and could result in long delays and legal complications. It could leave
you with the entire mortgage payment but only half of an ownership stake. Not an ideal situation.
The tax consequences can be serious as well. Adding a loved one’s
name to the deed means gifting at least half of the asset’s value to them. Depending on the value, that gift may trigger gift tax obligations, affect your estate planning or, at minimum, burden you with additional tax preparations for gift tax returns. Depending on the circumstances, you also may be saddling your loved one with a hefty capital gains tax bill on the future sale of the property.
To show your love, don’t add your loved one’s name to your deed.
Protect your loved ones properly by providing for them in a will drafted
by an experienced attorney, who is familiar with your family’s situation.