Planning for the future in New York State is not one-size-fits-all, and many families are unaware of the options. A common topic of discussion is whether it makes sense to add children to your deed or create an estate plan. Put simply, adding a child to your deed acts as a gift in the present and carries present-day consequences, while estate planning creates a mechanism for the transfer of assets after death. Each approach comes with benefits and drawbacks, and understanding the distinction will help you choose the right path for your family and financial goals.
Adding a Child to Your Deed
The Benefits:
- A fairly quick process that often entails recording a new deed in your New York County.
- The child or children become present co-owners to the property.
- The process can bypass probate and allow for the children to become surviving co-owners. Probate can often be costly and time consuming.
The Drawbacks:
- The child may face unintended tax consequences, including higher capital gains taxes if they sell the property. For example, by adding your child to your deed, your child does not get the benefit of receiving a “step-up” basis in tax.
- Since your child becomes an immediate co-owner, your property becomes vulnerable to your child’s creditors or judgments. Should financial troubles arise, or should your child be involved in a lawsuit, your primary residence can be put on the line to satisfy any debt.
- For seniors, making your child a co-owner could affect eligibility for the New York-specific STAR property-tax exemption. A child, as a co-owner, could cause you to violate the income limits, leading to higher property taxes.
- Adding your child to your deed, rather than creating a properly structured trust, could prevent you from qualifying for Medicaid, if such services are required in the future.
Estate Planning
Estate planning is a means of transferring property upon death, either by a will, trust (revocable or irrevocable), or transfer on death deed.
The Benefits:
- Creating a trust allows for your children to benefit from a “step-up” basis in tax, and effectively pay a reduced capital gains tax.
- Since your child would have a future interest in the property, your child’s creditors or judgments do not attach to the property.
- Depending on the type of estate plan you have, you can transfer property to your children and avoid probate.
- A properly structured trust can allow you to qualify for Medicaid benefits, assuming you meet all other requirements.
The Drawbacks:
- Drafting a will does not avoid probate, which may be costly or time consuming.
- Estate Planning tends to be more costly but provides for better protection in the long run and can allow you to meet other goals.
Conclusion
Gifting property by adding a child to the deed and by estate planning (through a trust, a transfer on death deed, or will) are two very different methods which may bring very different outcomes. Ultimately, the decision comes down to the homeowner’s interests and priorities. To best understand the consequences of any decision mentioned here, it is best to consult Sabrina Rabban, Esq. PLLC. This article provides general information and is not legal advice. Consult a qualified New York estate planning attorney for advice on your specific situation.