Let’s see… You have a property. You are thinking maybe it is the high time you shared ownership with your loved ones. Maybe your spouse, your children or even a relative. Where do you start? What is the procedure? What are the consequences? Bottom line is “what is the nitty gritty of adding someone to a deed?”
I don’t blame you. All these questions are valid. Adding someone to your deed is not just a walk in the park. Why? Because you need to think really hard before making that “yes” decision. And when it comes to your property, you need to have all the details at your fingertips.
Without further ado, here is what you need to know when adding someone to a deed.
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Talk to your lender
In case you still have an outstanding mortgage, it is important to talk to your lender before adding someone to a deed. As much as it is legal to add someone to a deed with an outstanding mortgage, your lender might exercise the due-on-sale clause when you add someone to your deed without consulting them first.
The due-on-sale clause gives lender’s the right to call in all the remaining amount of the loan in case the deed is transferred or sold to someone else. Adding someone to your deed means that you have transferred part of your property ownership or the whole property for that matter.
This might end up activating the due-on-sale clause if it is part of your mortgage clauses. It doesn’t matter whether money was exchanged or not.
To avoid this, talking to your lender before adding someone to your deed is highly encouraged. The lender will even help you with the required deed changes and transfers.
Adding someone to your deed does not mean that you will just add them to your existing deed. Not when you want to avoid probate.
Adding someone to the existing deed means that they will not have survivorship rights. What this means is that once you kick the bucket, whoever it is that you added to the existing deed might not automatically inherit your share of the property.
The only thing they get to keep at this point is their share of the property. Your share of the property, however, will be subject to probate.
To avoid such a scenario, you have to prepare a new deed for your property. With the new deed, you will add whomever you want and you will all have a joint tenancy to the property. It is important to note that there are two types of ownership in this process.
There are joint tenancy and tenants in common. To ensure your loved one has rights to survivorship, you need to choose joint tenancy when filling out documents for the new deed.
In case someone dies and is part of the owners under the new deed, then their share of the property automatically shifts by law to whoever survives them.
Explore other options to avoid probate
Creating joint tenancy for your property is not the only way you can avoid probate. You can use a transfer-on-death (TOD), which is also referred to as a beneficiary deed. Some states allow this, so you can confirm with your state first.
The difference between the TOD and joint tenancy lies in the fact that the transfer of the property ownership under TOD is done upon your death. As long as you are alive, the ownership of the property is still under you. Once you die, the property is transferred to your beneficiary without probate. However, you have to “deed” the property while you are still breathing.
If you are trying to avoid the ramifications of joint tenancy, transfer-on-death for your deed might be the way to go. The good thing about TOD is that you can take it back at any time without seeking anyone’s consent
If you were left with any inheritance here is what you can do.
Consider IRS gift taxes
IRS considers adding someone to your deed as a gift. A taxable one for that matter if it exceeds $15,000 as of 2018 – 2019. This amount is on a yearly basis and per person.
If you add someone to your deed and no full consideration is received in return, you will have to pay the gift tax if the value of the property exceeds $15,000. Actually, what is taxed as a gift is any amount above $15,000.
In such situations, it is very important for you to consult your accountant or an attorney. If you have none, look for one that specializes in this area as they are well informed in such matters.
You might not take it back
If it’s done it’s done. The probability of taking it back is very low and procedural. To take anyone from the deed once you have added them, you will have to get their consent.
That means that they can take loans with the property as security, sell the share of their property or even bring it down. On most occasions, there is little you can do about it.
Adding someone to your deed gives them control too. If you add them to a certain portion, then they get full control of that portion and you cannot dictate their actions when it comes to that part of the property.
Additionally, in case you need to use the property as security, refinance or sell it, you have to get consent from the people you added to the deed.
Until you are fully aware of all these implications, then you may go ahead and add someone to your deed.
Consider engaging an attorney
The process of adding someone to a deed is pretty much simple. You can get the necessary deed forms from legal websites or office supply stores and you are good to go. However, when it comes to the legal terms and implications such as the ones we have covered above, you can use an attorney.
A local estate attorney is more appropriate for such a situation. They are well informed on the state laws and will guide you on what you need when it comes to deeds.
Some states are very specific when it comes to the wording on deeds for those that want to create rights of survivorship. Use the wrong wording and the property will be under probate upon your death.
When all is said and done, the decision of adding someone to a deed should not be taken lightly. Neither should it be done casually. The consequences of this action might be far too hard to comprehend until you are faced with legal battles.
Before making your decision, talk to an attorney and an accountant. If you can get a local attorney, the better. This way, they can help you phrase every detail of the deed in a way that ensures the property is not under probate when you die. Some states are very specific on such details.
An accountant will help you sort out all tax issues that IRS might impose on the transfer. Most importantly, especially if your property is still on the mortgage, talk to your lender.
Unless you want them to call up the due-on-sale clause if it is on your mortgage. Finally, explore other options of adding someone to your deed. Transfer-on-death is the best option in case you want to avoid all the complications that come with joint tenancy.