Should I Add My Child to My House Deed in Minnesota?

Three siblings who grew up sharing a bedroom now only talk to each other through their lawyers. Nobody stole anything. Nobody lied. But what happened is the parents signed one piece of paper in 2004, and it did exactly what it said it was going to do. If you've ever thought about adding one of your kids to your house title to keep things simple, watch this first. I'm Andrew Ayers, an estate planning attorney in Edina, and I see this more than you would think.

So let's take our time machine back to 2004. Two parents buy a property together. Now, they have one son who was over the age of 18 at the time, so they add him to the deed. They didn't use a lawyer for this. They wanted to keep it simple. They'd read about this as a way to keep the property in the family and avoid probate.

So after they've done this, Mom tells all three kids it'll be split equally. Everyone believes her. Nobody writes anything down.

Here we are more than 20 years later. Both parents have passed away. The property has gone up more than $250,000 in value. And the siblings sit down to settle their mother's estate. She passed away after their father did.

As part of this process, someone pulls the deed to the property. Under the law, the son owns 100%. The other two get nothing from this property. These three adults who grew up together, shared all their holidays together, now can't sort anything out because there are hard feelings, and even harder ways to deal with each other, and the only way to do it is through their attorneys.

What's happening here is something most people don't understand. They're looking for something very simple to help their house avoid probate. They do this because they've seen it work on their bank account too. You add a child to your bank account so that if something happens to you, they can continue to manage money for you, and if you pass away, the bank account becomes theirs.

However, in the case of real estate, we have to look at the deed, and we need to understand some important terms here. When we have a joint tenancy, that means there's a right of survivorship. So in this situation, when the parents put their son on the deed as a joint tenant, he became a co-owner. When one of the joint tenants dies, their share goes straight to the other living owners. When that last parent died, in this case Mom, the son was the only one left, and the house was his the moment Mom passed away.

People assume their will is going to say, "I want my house to be divided three ways amongst my children." And if you set up your will the correct way, that is true. But in this case, the will never touches the deed. The property doesn't go through probate, and it doesn't have to follow the will. The will is only there to control what you own in your name when you die. And technically, when the parents died, they didn't own that property anymore.

Now, part of the challenge these siblings are having is that promise from Mom when they were younger. The promise that the three of you will inherit this house equally. Minnesota, like almost every other state, requires any kind of agreement about land, meaning property like houses and actual land itself, to be in writing. So that promise Mom made at the kitchen table, that's not going to hold legal effect here.

That doesn't mean there aren't a lot of hard feelings, though. We have two siblings who are really angry at their parents right now, and the third sibling, who owns the house and just wishes the family would stop fighting over this.

We need to remember in this situation that the eldest son is not the villain. He may honestly believe it's his. And if he does decide to share, it's his to share. He can actually give one-third of the house to each of his siblings, but that could create a gift tax issue for him.

So why do people do this? And what else can go wrong? The obvious answer for this family is they were doing it hoping their house would avoid the probate process. They thought the kids could sign for them later, their oldest son would be responsible, and a friend had a situation like this. These are all reasons we hear. And the real reason is they're looking for a simple way to avoid probate court.

The real effect here is that two of the kids were actually disinherited. And adding that child meant the house was exposed to the oldest son's creditors, if he got stuck in a lawsuit or went through a divorce. It means that if you add that child and down the road you want to refinance your house, you're going to need your child to sign off on it.

It counts as a gift, so technically Mom and Dad should have filed a gift tax return back in 2004. I didn't speak with them 20 years ago, so I don't know if that was done or not, but technically, adding him to the property is a gift that may trigger a gift tax return. And it can also cost this child, the eldest son, a big capital gains break he'd get by inheriting instead.

So you meant to make one thing easy by doing this, but you made four things a lot harder.

Clients come to me with these situations all the time. This family is dealing with probate and what we do after the fact, but there's also planning we can do before the fact to make sure this doesn't happen to your family.

One thing we can do is what we call a transfer on death deed. What that means is you keep 100% ownership of your property, and your kids don't have any ownership until you pass away. It's essentially a beneficiary designation for your property, like you have on a life insurance or retirement account, and you can name who the beneficiaries will be for your property. This allows your house to skip the probate process entirely. In the story we've been talking about, that was actually their goal all along. And you can change or revoke a transfer on death deed at any time. It just has to be recorded before you pass away.

The second option, which is a little more involved but is another great way to avoid probate, is a revocable living trust. It gives you that same probate avoidance, but instead of transferring automatically to a beneficiary, the trust continues to own the house when someone passes away, and it's managed according to the terms of your trust. It can say how the property will get sold. And if it's a cabin, for example, a trust is a great way to say how the family can use that cabin as they get older.

If you've already added a child to your deed, don't panic, but don't wait either. It can often be fixed while everyone's still alive and getting along, and that's when we want to be doing these things.

Those parents loved all three of their kids. Back in 2004, they came up with what seemed like a simple way to avoid probate. They trusted that a promise at the dinner table would be enforceable enough to do a deed's job.

But if your house is titled with one of your kids, or you're thinking about doing it, pull your deed and look at it this week. If you're in Minnesota and you want a second set of eyes on it, there's a link to book a call in the description below. And remember, it's a great idea to plan around the probate process, but make sure you understand what you're doing so you actually accomplish the goal you're looking for.