More Owners – More Problems: Should I Add Family Members to my Deed?

Parents usually add their children to the title to their real estate (“add them to the deed”) for three reasons:

  • To avoid probate (if the owners are “joint tenants with full rights of survivorship”).
  • To become poised for Medicaid eligibility and Michigan’s “estate recovery law”. Oftentimes this is based on “coffeeshop Medicaid planning.”
  • To take advantage of Michigan’s new uncapping exemption for real estate gifted to close family members.

But you shouldn’t make this decision lightly. Adding a person to the title of your real estate could have many consequences:

  • You will lose flexibility. Later, if you want to sell the land, borrow against the land, or changing your gifting scheme, you will need each co-owner (and sometimes each co-owner’s spouse) to sign off on the change.
  • The estate planning effects may not be what you think. Oftentimes, our clients have a backup plan if a child dies before them: they want the gift to go to the deceased child’s children. But the joint ownership most clients choose–joint tenancy with full rights of survivorship–is a “last man standing” arrangement. If a child predeceases you under that arrangement, that child’s children would not become co-owners of the real estate.
  • If you need Medicaid in the next five years, the transfer will be considered a “divestment.” To avoid eligibility penalties, you would have to reverse the deed.
  • Adding a co-owner to your title may expose that property to the claims of your co-owner’s creditors. Your property could get drawn into a co-owner’s divorce, bankruptcy, collections lawsuits, tax problems (including tax liens), and their own estates.
  • If you still owe money on the land, you may unwittingly trigger the “due on sale” clause in the mortgage agreement. You might be able to get your lender’s permission to add the co-owner, but you could end up in a world of trouble with the bank if you deed the land without its prior permission.
  • If your land’s value has appreciated significantly since you bought it, adding your children to the title may increase their capital gains taxes down the road.

These problems are difficult and expensive to fix after the fact. That’s why we encourage clients to consider a special deed called a “Ladybird deed.” This flexible deed is not necessarily a perfect solution, either (for example, it does not take advantage of the new uncapping exemption that I mentioned above). But it avoids many of these problems, and still bypasses probate. Call our real estate and probate attorneys if you have questions.