Will adding a child to the title of a property increase property taxes? A father wants to add his child to the title to his home, but his child is worried that this will increase property taxes. She might be worried about the wrong thing.
Q: I was wondering if you might be able to point me in the right direction. My father and my sister are on the title of the home we all live in. My father wants to add me to the title but we want to avoid the property tax from increasing. Would we do this through a quitclaim deed to avoid the property tax from increasing?
A: So, your father and sister own a property together and want to add you on title, presumably because you live there and your dad is thinking about the day when he no longer will.
To answer your question, we have to make some assumptions based on your question. We’ve seen situations where a parent adds a child to the title of the parents home. The parent usually does this for “estate planning” purposes. That is to say, the parent wants the property to go to a specific kid upon the death of the parent.
As we’ve written in the past, we don’t recommend that parents handle their estate planning this way, mostly because it can be messy and there can be unintended tax consequences to suddenly add a kid to the title to a home.
There are other ways to make sure that title of a parents’ home passes on down to their children without adding them to the title.
We have to assume that your sister was added to the title to give your dad some peace of mind that upon his death your sister would own the home. Years later, your dad decided that it might be unfair to have his home go only to your sister and not to you, so now he wants to have the title to the property be in everyone’s name equally.
Sounds good on the surface: equality among children. But there are some flaws to this logic. The first is that parents can’t assume that a child will outlive them. If a parent intends to pass that child’s share to their child’s children (their grandkids), the joint ownership of the home may unintentionally cause only one child to become the sole owner of the home.
How does that work? Let’s say all three of you are joint owners of the home with rights of survivorship. Your dad may want you and your sister to end up as joint owners of the home, but if she dies first and your dad later dies, you will become the sole owner of the home. Her children would be excluded from inheriting their mom’s share of the property.
For this reason, and some federal tax reasons that we have discussed many times in our columns, we think there are smarter ways for parents to own the property. Parents may own the home in a living trust and designate who will become the owner of the home when the parent dies. A living trust can take into account the various life changes that may occur from the day the trust is set up until the parent dies.
The parent might also choose to write (and sign) a will that will designate the beneficiaries of his or her estate, and also name the heir(s) who will end up owning the home upon the parent’s death.
Wills can contemplate many life changes that may occur from the time the will is executed until the date the parent dies. In some states, but not many, the parent can own the home in a land trust that would only control the title to the residence but allows the property to avoid probate. The land trust, as with the living trust, will designate who will own the home upon the death of the parent.
In some situations, the parent can sign a transfer on death (TOD) instrument that designates who gets the home when the parent dies. There are some people in the real estate community who don’t like transfer on death instruments, but we bring it up here as an option for those who, for whatever reason, don’t want to create a trust and don’t want to write a will, but want to have something that will be better than nothing to address this issue.
Finally, let’s talk about your future tax issue. You’ve asked a question about the property’s real estate taxes. Many taxing authorities will limit increases or freeze the valuation of a property for real estate tax purposes until the property ownership changes. However, most taxing bodies exempt ownership transfers for estate planning purposes from valuation increases. Having said that, we suggest that you call your local tax assessor’s office or real estate taxing body and ask them how they handle ownership changes.
If your dad executes a will, the will does not change the ownership of the home. But if your dad conveys title to you, that change could trigger a reassessment by your taxing body. You’ll need to verify this. On the other hand, if your dad puts his property into a living trust, the conveyance to the living trust should not affect the manner in which the property is and will be assessed. In any case, you’re better off talking to the local taxing body officials to get confirmation.
hello i live in a house in minnesota that my parents own and have a mortgage on it. my parents left us siblings the house in a will i havent been able to get a loan to buy the house yet. im trying to get a new septic, windows, and roof through a few programs but my name isnt on any documents so it screws me out of the programs. what can i do to make this happen please thank you