If your child’s name is on the deed to your house, you’ve made a gift to your child. Your child actually owns the house jointly with you (or individually) and you need your child’s permission to transfer the house to your living trust. If your child agrees to sign the deed, transferring the house into your trust is generally a good plan.
Please note that transferring the house to your child and then your child transferring the house to your trust is a gift. It’s unlikely that gift taxes are due but a gift tax form may be required and some lifetime unified credit exemption may be consumed. Consult with a qualified estate planning attorney to assure that you jump through all of the required legal hoops. It’s not complicated, but you do have to follow the rules.
Transferring your house to your trust, instead of owning the house jointly with a child or having your child own it individually, is likely a very good idea.
For example, if your child gets sued, gets angry, develops a drug or alcohol problem, or gets divorced, your house could be taken from you.
Additionally, if your child owns the house, he or she may not share the value with your other children or follow any other instructions you’ve provided.
There are income tax consequences to transferring your house to your child during your lifetime. If you give your house to your child during your lifetime, the child receives your tax basis in the house; on the other hand, if your child receives the house at your death, your child receives a full step up in basis to the date of death value. This matters when your child sells the house. The difference between a transferred basis and a step up in basis is likely thousands of tax dollars.
If you have questions about the best way to own your house and whether you should transfer it into your living trust, even though your child’s name is on the deed, consult with a qualified estate planning attorney.