After creating your estate plan, you may have believed that adding one of your children as a joint tenant on your real estate would be a good way to avoid the need for probate administration if you die. Unfortunately, this is a common mistake that can lead to many potential problems. The good news, however, is that it can often be corrected with a modification to your overall estate plan.
5 Reasons to Consider Adding a Trust to Your Estate Plan Instead of Keeping a Child on the Deed to Your Real Estate
Why should you consider updating your estate plan if you added a child to the deed on your real estate? The following is an overview:
- If a child was added as a joint tenant on your home, this can potentially create a taxable gift to the child. This is because the child has not paid fair market value for the property. Even if the gift was taxable, however, that does not mean that tax was owed. Individuals are allowed to gift a certain amount of assets annually and over the course of a lifetime without incurring tax.
- If the child is a co-owner of the property, it is a reachable asset in the event that your child is the subject of a lawsuit. Creditors can reach the asset. Claiming that the child is only on the title for estate planning purposes is not likely to be viewed as a valid defense.
- If the child is on the title to the property, the property may be reachable in the event of a divorce. When dividing property between the spouses, the house may be counted.
- If the child is a co-owner of the property, the asset may be countable and reachable in the event of a bankruptcy.
- If you have more than one child, the children who are not on the title to the property may not receive a share in the asset. Trusting the child who is on the deed to “do the right thing” and share the asset with the other children is not a good idea. Not only is it risky, but it also puts a substantial burden on the child who is on the deed to determine an equitable distribution of the asset. It also opens up the potential for issues between your children. Finally, it could create a gift tax burden for the child who is on the deed.
Instead of keeping your child on the deed, consider putting the property into a revocable trust. Adding a trust to your estate plan is a relatively simple process. The trust can be used to accomplish the same goals that you had when you made the mistake of adding the child to the deed. To learn more, we encourage you to contact us today at (714) 282-7488.
|
Related links: |