We all love a good life hack. I’m a sucker for any Tiktok or Instagram reel that shows me inexpensive DIY cleaning hacks (with two kids playing soccer every day, I definitely spend too much money on deodorizing my car and house!) Finding a clever way to save time, money, or hassle is a universal win—except when it comes to estate planning. As a SurvivorSupport® attorney with 25 years of experience in estate planning, finance, and working with families navigating life after loss, I’ve seen just about every estate planning mistake in the book. One of the most common (and often disastrous) is adding a child to the deed of your home as a shortcut to avoid probate.

It sounds simple, right? Just put your child’s name on the deed, and when you die, the home automatically becomes theirs—no expensive, confusing, and time-consuming probate administration – easy peasy, right? Nope. Unfortunately, this well-intended “hack” can open a Pandora’s box of financial, legal, and tax nightmares. Let’s break down why this is a mistake you don’t want to make.

 

1. A Tax Time Bomb Waiting to Happen

One of the biggest (and most overlooked) consequences of adding your child to your deed is the tax nightmare it creates. Over the years, home values have risen significantly. For many people, their home is their most valuable asset. Naturally, you want it to pass to your children smoothly and without the cost and hassle of the probate court. However, many don’t realize the huge tax savings available when property is inherited instead of gifted during life.

 

How Tax Basis Works

Your tax basis is generally what you paid for your home, plus any major improvements. When you sell, your taxable profit (capital gain) is the difference between the sale price and your tax basis.

Example of Your Basis:

• You bought your home for $200,000 and made $300,000 in renovations.
• Your tax basis is now $500,000.
• If you sell for $1,500,000, your taxable capital gain is $1,000,000.

The IRS allows a capital gains exclusion of up to $500,000 for married couples ($250,000 for single) on a primary residence—but anything beyond that is taxable.

 

The Power of the Step-Up in Basis

If your child inherits the home after your passing (instead of receiving it as a gift while you’re alive), they get a full step-up in tax basis. This means their new tax basis is the home’s value at the time of your death—not what you originally paid.

 

Example of Huge Tax Savings:

• Your home is worth $1,500,000 when you pass away.
• Your child inherits it with a new tax basis of $1,500,000.
• If they sell it for that amount, they owe ZERO in capital gains tax!

 

Sidenote: Spouses in North Carolina also receive a “half” step-up in tax basis when one spouse dies, and this can often be very helpful when the surviving spouse then plans to sell the home to downsize. This can be a bit more complicated to compute, but the idea from the example above, with the couple’s tax basis being $500,000 ($200,000 purchase price + $300,000 of capital improvements). Let’s say husband dies and the home is worth $1,500,000 at his death:

                      Original Tax Basis: $500,000      Stepped-Up Tax Basis:

Husband:     $250,000—————-  >  $750,000 (one-half of $1,500,000).

Wife:           $250,000 —————   > $250,000 (remains unchanged)

                 $500,000 —————  >               $1,000,000 – New Basis!

This same stepped-up tax basis principle applies to other capital assets, such as stocks. If your grandmother bought IBM stock decades ago, her original cost basis might be pennies per share—but if you inherit it after she passes, your tax basis becomes the value at her date of death, potentially saving you thousands in taxes.

(It is important to note that, while there is stepped-up tax basis, there can also be a stepped-down cost basis, where the property or other capital asset is worth less on the date the owner died than when he or she originally acquired the property. If then sold, this would result in a loss, and not a gain).

Adding your child’s name to your deed can completely wipe out these tax benefits. If you instead add your child to your home deed while you’re still alive, this is considered a gift (and you may need to file a Form 706, Gift Tax Return). But importantly – you’re also making a gift of your original cost basis. There will be no full step-up in basis at your death.

 

Example of a Costly Mistake:

• You add your child to the deed while you’re alive.
• She was gifted your $500,000 tax basis (and she will not get the step-up at your death).
• If she later sells for $1,500,000 when you die, she may possibly face capital gains tax on $1,000,000—a completely avoidable tax bill!

2. Your Home Becomes Your Child’s Problem Too

The moment you add your child to your deed, he or she becomes a legal co-owner of your home. That means your home is now subject to their financial problems. If your child gets in an accident and is sued, files for bankruptcy, or goes through a messy divorce, your home could potentially become tangled in their legal troubles. Imagine your child’s ex-spouse claiming an interest in your house—yikes!

Real-life nightmare: A client once added her son to her deed, thinking it was a seamless way to pass down the family home. A few years later, her son went through a brutal divorce. His soon-to-be-ex-wife’s attorney argued that since he was an owner of the home, she was entitled to a portion of it. Costly legal battles can ensue, and you can spend thousands in legal fees just to keep your own home from being divided in a divorce settlement or because of a lawsuit.

3. You Can Lose Control of Your Own Home

As a co-owner, your child has legal rights to the property. If you decide to sell your home, refinance, or take out a home equity loan, guess who has to sign off on it? That’s right—your child. And if they disagree or are uncooperative, you’re stuck.

Worst-case scenario: I once saw a situation where a mother wanted to downsize and move closer to her grandchildren. Unfortunately, she had added her daughter to the deed years prior. When the mother wanted to sell, the daughter refused because she loved visiting the home on weekends. The mother was left in a legal stalemate, unable to sell her own house without her daughter’s approval. The stories really are numerous, and they cause so much pain and chaos within the families.

Not only that, but your child can also legally take out loans using the home as collateral, potentially putting your home at risk of foreclosure if they default.

 

The Right Way to Avoid Probate

Yes, absolutely, probate can be a headache. Probate administrations can be tedious, time consuming, and costly. But there’s a far better way to keep your home out of probate while also avoiding these legal, financial, and tax pitfalls: a revocable living trust.

With a properly drafted revocable living trust, you maintain control over your home during your lifetime – you are the Trustee of your own trust, and your home (and other assets) are “owned” by your trust. Then, upon your passing, your trust, which still includes your home, smoothly transfers to your child without the need for any probate court interference—while also ensuring they receive the step-up in tax basis, saving them thousands (or even hundreds of thousands) in unnecessary taxes.

 

The Bottom Line: Don’t DIY Your Estate Plan

Adding your child to your deed might seem like a simple estate planning shortcut, but the risks far outweigh the benefits (and I’ve not even discussed how most DIY plans of adding a child to their deed aren’t even done correctly, so the family STILL ends up going through probate!) If you want to protect your home, maintain control, and set your children up for financial success, a well-drafted estate plan is the way to go.

With over 25 years of experience in estate planning, finance, and tax implications, I will work to ensure your estate plan is structured so that you maintain control during your life, and your family inherits your assets without probate – and with the maximum tax savings available. Reach out today to learn how a revocable living trust can be the right solution for you!