Thinking about putting your children’s name on the deed to your house? Think again. Although giving your children your house and reserving for yourself a life estate may seem like an excellent strategy to avoid probate, there are significant downsides. The most obvious is the loss of control. Once you put your children’s names on the deed, you no longer own the house and can no longer sell, lease or encumber the property with a mortgage without the consent (and signatures) of your children. Your right in the house is limited to the right to live in the house until you die. If you decide you want to move into a smaller place, you can certainly move out. However, you cannot insist that the house be sold so that you have the funds to buy a new home. If your children do not consent to sell the house, you may be out of luck. And even if they consent, you will only be entitled to the proceeds attributable to the value of your life estate. The older you are, the less your life estate will be worth and the less you will have to put into a new home.
In addition to the losing control you enjoy as an owner, putting your children’s names on the deed puts your home at risk since it will be fair game for your children’s creditors. If your children are unlucky enough to have judgments filed against them, their judgment creditors can place liens on the house to insure that your children pay their debts. These liens generally must be paid off, with interest, when the house is sold, if not sooner. As a result, even if your children consent to the sale of the house so you can move into a smaller place, once the creditors are satisfied, there may not be enough money left for you to buy the smaller place.
In light of the significant risks associated with life estates, using a life estate just to avoid probate is clearly not the best strategy.
Linda M. Toga of The Law Offices of Linda M. Toga, P.C. is an East Setauket, New York attorney with a general law practice focusing on estate planning, real estate, marital planning, small business services and litigation.