Posted on: Thursday, February 3, 2005

THE COLOR OF MONEY
Consider a few more reasons against adding children to home's deed

By Michelle Singletary

WASHINGTON — Lots of readers had follow-up questions about a column in which experts said it may not be a good idea to add the names of your children (adult or minor) to the deed of your home.

Here are some of those questions, plus answers from two attorneys who specialize in estate planning and real estate:

Q: A couple of years ago, my mother and her husband added my nephew — now age 16 — to their deed. The house has no mortgage. But now my mother wants to reverse it but was told that it would cost about $1,000 and that my nephew would need a court-appointed representative. Is this true?

A: "This is one of the reasons why one should almost never put a minor on the title to a property," said Arthur F. Konopka, a Washington-area attorney. Konopka said that when the minor became a part owner of the property, that portion of it (probably one-third) became truly his. Because he is under the age of legal majority, he is not legally able to sell or give back his share of the property. As a matter of fact, the couple cannot sell or refinance because each of those events would require the nephew's signature. Because the nephew cannot act for himself, someone has to be appointed to protect his interest in the property (and it will probably cost more than $1,000.)

Q: Can I register my two daughters as third and fourth owners of our house to avoid paying a future lien from a bill collector?

A: Whatever portion of the house is not transferred to the daughters could still be reachable by a parent's creditor, said Lou Hamby, a real estate and estate-planning attorney in Palm Beach, Fla. "Additionally, creditors of the 'new' owners could now attack their interests." Hamby also said any transfer made with the knowledge that creditors were looming could be set aside as a fraudulent conveyance.

But Konopka points out that much depends on the way the house is currently titled. Since the reader said "our," she may have been thinking about the unique status a husband and wife have if they have taken title to their property as "tenants by the entirety," Konopka said. If the parents own the property under a tenancy by entirety arrangement, the bill collector cannot attach any portion of the real estate unless the debt is owed by both husband and wife, Konopka said.

Q: Isn't it true that when you add children to the title of your home you might be deeding to them a big capital gains bill? However, if they inherit the property, they can use the value of the property upon a parent's death as their own stepped-up cost basis. Right?

A: That's right. When someone inherits property and then decides to sell it, they pay capital gains only on the amount by which the property has gone up in value from the date of death, Konopka said. For example, suppose a couple bought their home for $20,000 in 1955. The home is worth $300,000 at their death. An adult son inheriting the property gets it with a fair market value of $300,000. If it is immediately sold, there is no tax because there has been no gain. But if the son's name is added to the title before the parents' death, he doesn't get the full stepped-up value.

Michelle Singletary writes for the Washington Post.