If you are considering adding your adult child to your home deed then consider these factors first.
Often, I receive questions from clients asking if they should add their adult child or children to their home deed. While this question is complex, it really depends on the motives and circumstances on a case by case basis. However, below are a few important factors for all parents in this scenario to carefully consider while weighing their options.
What is the purpose?
First and foremost, you should ask yourself, “why do I want to add my child(ren) to my home deed?” The two main answers I typically receive to this question are: (1) I want to make sure my child(ren) has ownership in real estate; and (2) I want to make sure that my child(ren) receives my property upon my death.
For Ownership in Real Estate
Once a child is added to a home deed, the child becomes an owner of the property. Importantly, this means that in order for a parent to sell or refinance the property down the road, the child must also consent. However, the type of interest that the child owns is based upon the matter in which he or she holds title.
The two ways in which a person can hold title are tenants in common and joint tenants with rights of survivorship. Tenants in common means that each grantee owns a divided interest in the property and can individually convey their interest to another party. Additionally, in the event one of the title holders dies, the deceased’s interest is conveyed in accordance with the terms of the deceased’s will. However, if the deceased title holder did not have a will, then the interest is conveyed according to law. In contrast, joint tenants with rights of survivorship means that each grantee owns an undivided interest in the property. Unlike tenants in common, in the event one of the title holders dies, the deceased’s interest in the property will automatically pass to the other title holder(s).
Transferring Property Upon the Parents’ Death
If the purpose of adding your child to your home deed is only to ensure that he or she receives the property upon your death, then it is best to explore other avenues of doing so. For example, you could devise the property through a will. A will is an ideal option for parents who do not wish to have their child be an owner at the time of purchase but would like to successfully transfer their interest to their child upon the parents’ death.
There are significant risks associated with adding a child to your home deed. These risks include, but are not limited to:
- Violating the terms of your security deed;
- The potential of your child’s finances negatively affecting your own ownership and title; and
- Negatively affecting your child’s chances of obtaining student loans.
While these examples are some of the most common, this is not an exhaustive list. The various risks associated with adding a child to a deed depend on your specific circumstances.
Security Deed Violation
Adding an additional party to the deed often violates the terms of the security deed. Furthermore, it can invoke the due on sale clause enabling the lender to accelerate payment of the loan. This would make the full loan payment immediately due. In order to avoid this, you should inform the lender of your desire to add your child to the deed and receive the lender’s approval.
Potential for Liens
Secondly, your home ownership interest can be negatively affected by your child’s finances. Specifically, certain claims, judgments, and liens against your child could attach to your child’s interest in the home. Furthermore, if your child falls on hard times and declares bankruptcy, this act could attach to your home as a lien and potentially affect your own ownership interest in the property.
Student Loan Eligibility
Lastly, being added to the deed could potentially affect your child’s student loan eligibility. Certain schools use a system that accounts for your child’s assets. In applying for financial aid, your child would have to report their ownership interest in the home as one of their assets. Having such an asset could be a factor that negatively affects the amount or total eligibility for student loans.
There are several factors to consider when adding your adult child to a deed. Ultimately, the decision should be made after careful consideration of the risks and benefits.
Audra Frimpong is a new addition to the TOKN family and has already proven to be a valuable asset to out Real Estate team. To learn more about Audra, visit her profile here.