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Thursday, April 8, 2010

Answering your questions - joint property with parents

Further down in this blog, I recently received an interesting question from a reader, which was:

"What are the implications for me and my elderly parents of purchasing or jointly owning their home? I am single and will remain so, so joint assets with a partner are not an issue."

Here is the answer I provided:

"When you and your parents are deciding whether or not to put you on as a joint owner of their home, it's a matter of weighing risk against benefit. Everything you do in estate planning boils down to that.

What are the risks?
For you the risks are minimal, as you are not the one who financed the asset in the first place. It's not where you live (as far as I know). So if for some reason the property were to be lost, you wouldn't lose your home or a significant part of your assets.

Your parents, however, stand to take a pretty big hit to their finances should the property be lost.

As you've mentioned, there is no spouse and therefore no potential divorce to worry about. That's a big risk removed.

However there are other ways in which you could inadvertently cause your parents' home to be lost. For example, you could cause a major car accident in which you are being sued for millions. You could give a personal guarantee for a business venture that fails. Either of those situations could cause creditors to go after all of your assets, including your parents' home.

Another downside for your parents is that if your name is on the title as a joint owner, they can't sell or mortgage their home without your written consent. This means a loss of control and independence for them.

What are the benefits?
You haven't mentioned whether you are an only child or not. If you are, you are likely the person who is going to inherit the house in any event. Putting the house in joint names with you might avoid the need for getting probate from the court, but that's only the case if your parents have no other assets.

If there are investments, a fairly large bank account, a cabin, mineral rights or any business interests, the executor will have to apply for probate anyway.

In other words, if the house is being put in joint names just to avoid probate, that may or may not be effective, depending on what else is in your parents' estate.

If you are not the only child and your parents want to treat their children equally, and you get the house, there has to be enough in your parents' estate to give the other children an amount equal to the value of the house. For most people that's not possible.

I hope this answer gives you the information you need."

2 comments:

  1. Thanks a lot Lynn for posting so much great information on this blog. I learned a lot by reading it. Can I ask a stupid basic question? Can we easily add and remove a person to the house title? What is the process? If it is easy enough, probably I can join my kid's name to my house title when it is the right time, but not too early.

    Thanks again,
    Benny

    ReplyDelete
    Replies
    1. Benny, this is not a stupid question at all. Actually, I wish more people would ask it rather than just go ahead and take steps without finding the answer first.

      Can you easily add someone to a title? Yes.

      Can you easily remove them? No, not usually.

      Before adding your kid's name to your title, consider this:
      1. If your kid gets divorced, you may lose your home.
      2. If your kid is sued, you may lose your home.
      3. If your kid goes bankrupt, you may lose your home.
      4. If your kid doesn't agree to sell the home when you want to, you can't do anything about it.
      5. If your kid doesn't live in your home when you sell it or pass away, you may have just landed your kid with a tax bill.
      6. Adding your kid's name to the title no longer guarantees that it will bypass the estate, because of new intergenerational joint tenancy rules.

      Lynne

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