Estate Planning Mistake to Avoid!

Here is a quick tip and a common mistake I see many people make with regard to their estate planning.

Are your children on your bank accounts or deed to your house? If you are you could be doing a disservice to yourself and your children!

Holding any asset with anyone (other than a spouse) can be problematic and horrific when it’s your home. Many well intentioned parents in an attempt to avoid probate add their children to title of their home as joint tenants.

When this happens, the question that needs to be asked is: “is it worth possibly having my house sold out from under me, while I still plan on living in it?”

By adding another person to your assets you are opening yourself up to the claims against the other, including creditors, predators and the IRS. For example, say you child is involved in an car accident that maims another. Well when your child is sued, YOUR house may be a countable asset if you added your child to the deed as joint tenant.

Quite the scary proposition!

Another important consideration is income tax. Let’s look at an example. Say parents own a $200k home. Well, adding two children would be a $50k gift. Years go by, the parents pass and laterthe house sells for $400k. Well, those kids now have a basis of $50k instead of the $400k if they had inherited the property. They are each on the hook for $150k worth of income tax owed to the IRS! Because thay probably did not live in the house, they are also going to miss out on the $500k exemption that married couples receive for selling the home.

Estate planning is more than just preparing documents, it takes a holistic approach to an individual’s situation and an analysis of many factors.