Stop! Don’t Rush to Add Your Kids to the House Deed—Here’s Why

So, you’ve finally made it mortgage paid, house looking good, and you’re thinking, “It’s time to put the kids’ names on the deed, so they’ll avoid probate and headaches down the road.” Sounds simple, right? But before you grab a pen (or call your lawyer), let’s pump the brakes and talk about why this “good deed” might backfire in the long run.

The Good Intentions Trap

Of course, you love your kids and want to make life easier for them. Adding them to your home’s deed feels like a shortcut to big savings, less paperwork, and family harmony. But (spoiler alert!) this well-meaning shortcut can actually trip up your family with expensive tax surprises.

Meet the Not-So-Fun Surprise: Capital Gains Taxes

Homes often increase in value over time, so selling your house later will likely mean selling it for much more than you paid. Therefor if you add your kids to your deed now, the IRS will treat their ownership as if they bought the house when you did, meaning their "cost basis" is the original purchase price. When your kids eventually sell, they'll owe capital gains tax on the difference between this basis and the sale price. The tax rate on these gains can go up to 37%!

There are helpful exclusions: if your kids lived in the home as their primary residence for two out of five years before the sale, they can exclude up to $250,000 of gain ($500,000 if married filing jointly) from taxes. But with real estate values rising, any profits beyond those amounts are taxed, and those bills can be steep, especially on older family homes.

Enter the “Step-Up Basis” Your Secret Tax Move

Here’s the twist: When you pass away, your heirs inherit the house at its current market value, not the value when you bought it. It’s called a “step-up in basis.” If your kids sell soon after, there’s little to no capital gains tax, a huge win for them! But if you put them on the deed now, they miss out and inherit your original purchase price instead.

Let’s Break It Down: Two Paths, Two Endings

Scenario 1: The Inheritance Highway 

You bought the house for $100,000. When you pass away, it’s worth $500,000. Your kids inherit the house, then sell for $500,000. Thanks to the step-up basis, they owe nothing in capital gains tax. Sweet!

Scenario 2: The “Oops, I Added My Kids” Expressway 

Same numbers, but you added your kids to the deed before you passed. Their cost basis is still $100,000. When they sell for $500,000, even if they claim the exemption, they’re left owing capital gains tax on the difference. Ouch.

The “Wait, There’s More!” Problem List

Beyond taxes, adding your kids to your deed can:

·       Make your home vulnerable to their creditors or divorces.

·       Complicate refinancing, selling, or even moving.

·       Set up epic family squabbles if everyone doesn’t agree.

The Smartest Move? Sometimes, Do Nothing.

The most loving thing you can do might be to keep your name on the house and let your kids inherit it the traditional way (with a step-up basis). Or even better, work with an estate planning attorney to create a plan that locks in benefits and minimizes hassle. Avoiding probate isn’t the only goal, maximizing what you leave behind matters just as much!

Ready to make the smartest choices for your family’s future?

Contact Sammartino & Sultan Law Group to schedule your estate planning consultation today! Our experienced team will guide you through every step, protecting your home, maximizing tax benefits, and making sure your legacy lasts for generations.

About the Author

Leslie has been practicing law since 2009 and is the host of the estate planning podcast 'Legacy Purse'. She has a long history of representing family members struggling to inherit property and/or wealth from deceased family members through the Probate Courts. Knowing how time-consuming and expensive the probate process is, Leslie takes great pride in helping her clients learn how to plan and protect their families during their lives so they can avoid the probate court process and save their loved ones that additional grief (and expense).