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Randall D. Armour: Adding your kids to your house's title is a bad idea

It's Your Money

Posted: May 26, 2010 3:56 p.m.
Updated: May 27, 2010 4:55 a.m.
Avoiding probate is one of the major reasons (and often the only reason) that my clients give for wanting to establish an estate plan.

Most of them have heard that a living trust can avoid the cost and delays associated with probate and allow assets to transfer to the beneficiaries without court intervention.

In most cases, if the trust is properly drafted and funded (many trusts that I review are not), this is correct.

Other common methods of avoiding probate include beneficiary designations (life insurance and retirement accounts), payable-on-death designations (banking and investment accounts) and joint ownership of assets. Although there are several reasons why you would not want to use any of these methods as your only estate plan, I would like to focus on joint ownership.

For most of my clients, their home is their major asset and beneficiary or payable-on-death designations are not available for California real property.

Many clients tell me that they have been advised by a friend or even a professional advisor to add their children as joint tenants to their property to avoid probate as an alternative to creating a trust.

I know that this is a very common practice because I work very closely with title and escrow officers who tell me that they often get calls from people asking for deeds to add joint tenants to their property. While this would avoid probate, adding your children as joint tenants can have disastrous results.

I had a consultation several years ago with an elderly widow who had added her five adult children as joint tenants to her house to avoid probate. The reason she came to see me was because she had decided to sell her house and one of her sons would not agree to the sale.

I had to explain to her that, unless the son relented, she would not be able to sell the house without court action because her son now had the exact same ownership rights to the property that she had.

When I tell this story most people insist that their children would never act like this woman's son. Even if this is true, there are still other dangers lurking.

Another true story involves an elderly retired couple who decided to add their only son as a joint tenant to their property. About a year later, the son was sued and a judgment was obtained. Because the son now owned an undivided interest in the house, the judgment creditor was able to seize the son's interest in the house.

There are several other involuntary actions in which a joint tenant could become involved that could negatively affect the parent's property such as IRS liens, divorce, bankruptcy and incapacity. In addition, by adding more than one joint tenant, you would be exponentially increasing the risks. There are also potential gift tax and capital gains tax issues that must be examined before adding anyone on title.

A living trust is a no-risk alternative to adding the children as joint tenants. A living trust will avoid probate and determine the beneficiaries of your property while allowing you to remain in complete control during your life.

Randall D. Armour is an attorney and licensed real estate broker. He can be contacted at (661) 259-0003, or visit "It's Your Money" appears Thursdays and rotates between a handful of the valley's financial professionals. His column reflects his own views and not necessarily those of The Signal.


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