To Deed Or NOT To Deed. Or maybe I should call this, "When Good Intentions Go Bad". In an effort to avoid probate, or make it easier for children to manage a house when a parent no longer can, some people have thought about adding their children to the deed. On the surface this may seem like a good idea, but there can be serious consequences.
The parents no longer have exclusive right to decide what they can do with the property. If the parents decide to sell the house, or refinance, and the child is a minor, that ownership interest must go through a converatorship process. In some cases the child's problems can become the parent's problems if the child encumbers the property, or the house gets caught up in a divorce. Now that debt is on the house for the parents to deal with as well. On the other hand, if the parents default on the loan, the consequences also follow the child.
In Colorado this can be reason for a lender to foreclose. In situations where the child isn't a party to the original arrangement with the bank, this will violate the due on transfer clause in the deed of trust. A deed of trust is the instrument used to create a mortgage in Colorado. Even adding a spouse can be reason for foreclosure if this violates the original terms of the deed of trust.
Of course there can be tax consequences as well. Even if the property is sold after the parent's death, and if the child doesn't live in the house, there is no earned income credit after the property is sold.
These are just some situations to make you think about the consequences of adding your child to your deed. For more information contact your tax professional and attorney.
Debbie Laity Your Western Colorado Real Estate Specialist
GRI, SFR, REO Specialist, CNE, AHWD
Broker Associate
Cedaredge Land Company
970-589-2886 Cell
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