5 Key Considerations Before Adding Someone to a Deed

The adage “sharing is caring” is a message we’ve all heard repeatedly, and it holds some truth. However, if you’re thinking about taking the significant step of adding someone to the deed of your home, it’s crucial to carefully evaluate the implications involved. Adding someone to your deed grants them the same “bundle of rights” that you enjoy as the property owner, including control, enjoyment, possession, exclusion, and disposition. It’s vital to consult with an estate attorney and your mortgage lender prior to making such a decision to ensure that you fully grasp your rights and if this action aligns with your best interests.

Consider the following five factors before you proceed with adding someone to your property deed.

1. It’s irreversible

Once you add another individual to the deed, you relinquish all or part of your ownership rights. This action is final unless that person agrees to be removed from the deed, which can complicate matters. They may have the authority to secure a loan on the property, modify it, or even sell their share without your permission. This can potentially lead to disputes that may entangle the property for extended periods. Before you make this decision, ensure you understand the long-term impacts.

2. Lender consent is essential

While adding someone to an existing mortgage is not illegal, it’s worth noting that lenders often include a “due-on-sale clause” in their loan agreements. This clause could allow them to demand immediate repayment if the deed changes. Therefore, it’s critical to seek authorization from your mortgage lender prior to including anyone on your home’s deed to avoid triggering this clause.

3. Increased liability risk

Consider a scenario where you add a family member, like a brother, to your deed. If he faces financial difficulties, the repercussions could affect your property as well. Creditors, the IRS, or ex-spouses could potentially claim a stake in your home, especially if he has related debts or legal challenges. They may attempt to put a lien on your property or force a sale to recover funds, complicating your financial landscape.

Additionally, sharing ownership may lead to tax liabilities when you sell the property in the future.

4. Potential gift tax implications

The IRS classifies the action of adding someone to your deed as a gift, meaning that the individual could become subject to gift tax regulations. As of 2018, the IRS allows a gift of up to $15,000 per year, per recipient without tax implications. Exceeding this limit could result in gift tax liabilities.

To navigate these complexities effectively and avoid unexpected bills down the line, consulting a tax attorney or a Certified Public Accountant (CPA) is advisable before making any changes to your deed. Good intentions can lead to unexpected financial consequences if not handled carefully.

5. The situation can become complex

Adding someone to your deed comes with numerous risks and potential complications. This shared ownership status can affect your ability to sell or refinance your property. For older homeowners, transferring property could also negatively impact Medicaid eligibility.

Furthermore, keep in mind that adding someone to the deed does not make them liable for the associated mortgage unless the original loan terms are changed. You remain solely accountable for the mortgage payments, while also granting the other person ownership rights.

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