If you’re considering adding someone to the deed of your home for any reason, whether it be a sibling, spouse, significant other, adult child, friend, or partner, it’s important to understand that your entitling them to the same bundle of rights that you have as a property owner. This means control, enjoyment, possession, exclusion, and disposition. Here are five things to consider before adding someone to the deed.
#1. You can’t take it back.
Once you add someone to a deed, all or a portion of your ownership is transferred to that person. You cannot revoke this and less the person you’ve added provides consent to be removed. They can take a loan out on the property, remodel it, sell it, or even tear it down and there may not be anything you can do about it.
#2. You have added liability.
If the person you add to the deed fails to pay taxes or incurs a tax lien, has issues with creditors, or goes through a bankruptcy, the entity owed can place a lien on the property and force a sale to collect the debt. This can also mean generating income tax liabilities when the residences sold in the future.
#3. IRS gift taxes may apply.
When you put someone else on your deed the IRS sees this as a gift. This person become subject to IRS regulations. As of 2018, the allowable gift limit is $15,000 annually. Anything exceeding that is subject to gift tax.
#4. You may need permission from your lender.
Most lenders incorporate a loan due on sale clause which gives them the ability to call the loan if the deed is transferred or the home is sold. When you deed your home to someone else you’ve effectively transferred part ownership which could activate this due on sale clause.
#5. This can get complicated.
There are many hidden risks involved when adding someone to a deed. You become a joint owner rather than the exclusive owner. This could impact your ability to sell or refinance in the future adding someone to the deed does not automatically make them responsible for any outstanding mortgage unless the loan agreement as modified so while they can make changes to the property, you are probably still responsible.
Most lenders are aware of these types of situations and they’re not uncommon but it’s important to speak with a real estate attorney or someone well-versed in this situation.