For many homeowners in Connecticut, especially those in affluent areas like Fairfield County, the idea of adding an adult child to their home title can seem like a smart estate planning shortcut. But while well-intentioned, the legal and financial consequences can be far-reaching.
Let’s break down the pros, cons, and real risks to help you make an informed decision.
Why Some Homeowners Add Their Child to the Title
1. Probate Avoidance
One of the most common reasons parents add a child to their deed is to avoid the time and cost of probate. By co-owning the home as "joint tenants with right of survivorship" (JTWROS), the property automatically passes to the surviving owner when one dies, with no court process needed. (Note: a release of Estate Tax will still need to be obtained from the probate court.)
2. Simpler Inheritance
Some view this as a way to "get it over with now," especially if there's only one child or the home is their primary asset. It can seem like a straightforward shortcut to keep the house in the family.
3. Avoiding the Cost of a Trust
Setting up a revocable trust may sound expensive or intimidating, so adding a child directly to the deed feels like an easier, cheaper alternative.
Why It Can Go Very Wrong
Unfortunately, this well-meaning move can cause major complications, both now and later. Here are the most common and costly risks:
1. Gift Tax Exposure
Adding a child to your deed is legally considered a gift of half the home. If your home is worth $800,000, you're gifting $400,000, well beyond the $19,000 federal gift tax exclusion (2025 limit). This means you must file a gift tax return and start using your lifetime exemption (currently $13.99 million), even though no tax may be due immediately.
2. Loss of Control Over the Property
Once your child is on the title, they are a legal co-owner. They can block a sale, take out a lien, or even be forced to sell if sued or divorced. You can't just take them off the title without their consent.
3. Exposure to Your Child's Creditors or Divorce
If your child gets into financial trouble, their share of your home is fair game. This means creditors, bankruptcy courts, or ex-spouses could come after your property.
4. Medicaid Eligibility Problems
Medicaid has a five-year “look-back” rule, meaning they review asset transfers made within five years of your application. If they find you gave away assets (like a home interest) for less than fair market value, you may face a penalty period where you’re ineligible for benefits.
5. Complicating Future Tax Benefits
When a child inherits a home, they get a "step-up in basis," which means capital gains are minimized if they sell it. But if they co-own it before your death, they may only get a partial step-up, potentially increasing their tax bill down the road.
6. Financial Aid Headaches
If your child co-owns your home, it could appear as a major asset when applying for financial aid, limiting their eligibility for grants, scholarships, or income-based student loan repayment plans.
7. Risk of Unintended Heirs
If your child dies before you and hasn’t properly set up their own estate plan, their share of the home may pass to their spouse, children, or even creditors, not back to you or your preferred heirs.
Alternatives That Offer Protection and Flexibility
1. Create a Revocable Living Trust
Instead of adding your child to the deed, transfer the home into a trust with clear instructions for what happens upon your death. You retain full control while avoiding probate and minimizing tax and creditor risks.
2. Wait to Transfer Ownership
If you don't urgently need to transfer ownership, keeping full title until death ensures you retain full control and pass on a stepped-up basis.
3. Consider a Life Estate
In some cases, creating a life estate allows you to remain in the home for life while giving your child a future interest. This can preserve tax benefits and partially avoid probate, but comes with its own trade-offs.
Bottom Line
Adding your adult child to your home title might seem like a generous and efficient estate planning move, but it can easily backfire without professional guidance. From gift taxes to Medicaid issues to creditor exposure, the risks are real.
If your goal is to simplify inheritance, preserve privacy, and avoid probate, there are safer and more flexible ways to accomplish that. Speak with an experienced Connecticut real estate or estate planning attorney to explore the best options for your family’s long-term protection and peace of mind.
