Question: I am 77, and my daughter is 46 and disabled. Should I add her to the title on my house so that it won’t have to go through probate? Someone told me that I should get a quitclaim deed with rights of survivorship.
Loraine’s Answer: I strongly recommend NOT adding your daughter to your house title. Adding her name to the title and making her a part owner of the property now would create several potential problems:
- You would be making a taxable gift to her.
- She would only receive an income tax basis step-up on half of the house when you die. She might owe capital gains taxes on the other half.
- You would expose the house to potential creditors she may face.
- If you have a mortgage or home equity line of credit, it could create problems with those debts.
Leaving assets outright to a disabled child may not be a good idea anyway. If she is on needs-tested benefits such as Supplemental Security Income (SSI) and Medicaid, she may lose eligibility and have to requalify. Requalifying for the benefits may mean spending assets that otherwise could have been preserved for her benefit.
If her disability affects her ability to manage her own assets, then leaving assets to her outright may put her at risk of fraud, theft, or simply poor judgment.
Key Estate Planning Takeaway: When considering estate planning for a disabled or special needs child, a Trust is an option that could prevent problems and hassles for the child. A Revocable Living Trust would allow you to transfer ownership of the house and other assets while you are still living with no gift or income tax consequences. Federal law would also prevent such a transfer from creating problems with any outstanding mortgage debt. Upon your death, the Trust can pass ownership of the house without needing to be admitted to probate first. Your daughter would receive a full basis step-up that includes any capital gains.
In addition, a supplemental needs trust (sometimes called a special needs trust) would allow a disabled beneficiary to benefit from the Trust without having it counted against them for needs-testing purposes. You can select a Trustee to manage the property for the beneficiary and help ensure that it’s protected from outsiders. An experienced estate planning attorney can help you determine the best way possible for your daughter to benefit from your assets.
This “Q&A with Loraine” blog series features answers from Morgan + DiSalvo Partner Loraine DiSalvo to common questions. A key takeaway from each exchange highlights an important facet of estate planning.