Dear Liz: My wife and I are both 80 and we are contemplating adding our 56-year-old daughter as a co-owner and borrower to our home. The house is now valued at $600,000 and our mortgage balance is $196,000.
If it is advisable, and I am able to do this, will it prevent the house going into probate when my wife and I have passed on? Because my daughter will be the sole beneficiary of our assets, is a will or living trust required?
Answer: Please don’t do this without consulting an estate planning attorney — who will most likely tell you not to do this.
You can’t add your daughter to the mortgage without refinancing the loan. Adding your daughter to the deed means she would lose the valuable “step up” in tax basis that would otherwise happen after your deaths.
If she’s made a co-owner, she could be subject to capital gains taxes on all the appreciation that happened on her share. That tax burden essentially would disappear if she were to inherit the home instead.
How you should bequeath the home to her depends on where you live. In most states, probate — the court process that typically follows a death — isn’t that bad.
However, in some states, such as California or Florida, probate can be lengthy, expensive and worth avoiding. It can be worth investing in an attorney to draw up a living trust.
Another option in many states, including California, is a “transfer-on-death” or beneficiary deed, which allows you to sign and record a deed now that doesn’t transfer until your death. You can revoke the deed or sell the property at any time.
Florida doesn’t have transfer-on-death deeds, according to self-help site Nolo.com, but the state offers something similar called an “enhanced life estate” or “Lady Bird” deed.
But again, discuss this with a qualified estate planning attorney before proceeding.
Everybody knows that renting-to-own furniture, televisions and electronics is an expensive way to buy. What you may not know are all the other ways these transactions can hurt you. It’s not just ruined credit and aggressive collection tactics. In some states, you can even go to jail.
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