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Don't Add Kids to Home Title – Use Living Trusts for Safe OC Estate Transfer

Posted by James Burns | Mar 05, 2024 | 0 Comments

As an estate planning lawyer in Orange County, I frequently see parents make the mistake of adding a child to the title of their home, thinking it will make transferring ownership easier down the road. However, this choice exposes you to some serious risks that most people don't consider. Let me explain in simple terms:


Creditor Risks Made Clear If you add an adult child to the home's title, their ownership becomes one of their personal assets. This means:

·         In a Divorce - Your child's ex could potentially get half of your child's interest in your home.

·         If They're Sued - Whether it's a car accident, business dispute, etc., the portion of your home titled to your child could be seized to pay off the judgement against them.

·         Bankruptcy - If your child goes bankrupt, their share of your home's value could be sold off to pay creditors.


Tax Consequences to Avoid Giving away partial ownership before passing also creates potential tax headaches compared to using a living trust:

·         Capital Gains Tax - Upon selling, your child may get hit with capital gains tax on their share since they didn't fully inherit it.

·         Gift Tax - Transferring ownership now may trigger gift taxes depending on the home's value.

·         Losing the Tax-Free Exclusion - You could get knocked out of valuable capital gains exemptions ($500k for married couples) on the portion given to your child.

·         Losing Out on Step-Up in Basis An often-overlooked drawback - by adding a child to the title, you miss out on getting a full step-up in basis to the current fair market value when the home is inherited after your passing. This step-up can provide major capital gains tax savings when the home is later sold by your heirs.


Losing Control of Your Home Once your child is on the title, you've given up some rights as the full owner:

·         They Could Sell Without Your Permission - As a co-owner, your child could make decisions to sell the home against your wishes if you become incapacitated.

·         They Could Borrow Against the Home - You could end up trapped in a bad situation if your child takes out loans against their interest.


The Living Trust Advantage Instead of exposing yourself to those risks, placing your home into a properly structured living trust allows you to:

·         Maintain Full Control - As trustee, you control all decisions about the home while alive.

·         Avoid Probate Court - Allows your assets to transfer smoothly to heirs without getting bogged down.

·         Save on Taxes - Significant tax exemptions and stepped-up basis can save thousands.

·         Distribute According to Your Wishes - You decide when and how the home transfers after you pass.

·         Protect Your Legacy - Assets in the trust are shielded from your heirs' potential creditors or divorce battles.


The notion of easily adding a child to the title of your California home may seem appealing on the surface, but the potential risks and negative consequences are too great to ignore. Exposing your home to creditors from your child's divorce, lawsuits, or bankruptcy is simply too big of a gamble. Losing out on valuable tax benefits and relinquishing control of decisions regarding your home are other pitfalls to avoid.


Fortunately, establishing a revocable living trust provides a proven solution that protects your home, allows you to transfer it tax-efficiently to your heirs according to your exact wishes, and shields the assets from creditors and divorce proceedings. Don't leave the legacy you've worked so hard to build open to unnecessary risk. Take charge of your estate plan today by calling the Law Office of James Burns at (949) 305-8642 to get started on creating a comprehensive living trust tailored specifically for your family's needs.

About the Author

James Burns

Estate Planning, Asset Protection, Business and Real Estate Transactions, nutraceutical Law and franchising:


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