Why Putting Family on House Title is NOT A Solid Move (w/Greg Bennett) | Ep 64

It sounds simple: just add your kid to the house title and skip the legal stuff. But what feels like a shortcut can turn into a mess… and sometimes, a full-blown legal disaster.

In this episode, I’m joined by Sapere Pro and estate planning attorney Greg Bennett to talk about why putting family on your title is almost never a good idea. We’ve seen this move backfire in ways that cause family conflict, tax surprises, and court cases that could have been prevented.

If you’ve ever thought, “I’ll just put my kid on the deed so it’s easier when I die,” this is your heads-up: it’s probably not as easy or as safe as it sounds.

Greg and I often see people trying to do the right thing with their home, only to create problems they didn’t expect.

We talk about what really happens when you add someone to your title, and how it can lead to legal issues, financial risk, and family tension that’s hard to unwind once it starts.

Here’s what we cover:

• Why “just put them on” feels simple but can backfire fast
• The real risks of giving up legal control of your home
• How families end up in court over decisions made with good intentions
• A cleaner, safer way to protect your property and the people you love

This one’s for anyone thinking about estate planning, helping aging parents, or navigating property during divorce. You have options. Just make sure they’re the right ones.

RESOURCES:

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Transcript

Kelly Bennett: 0:03

From the studios at Sapere Law and Mediation, this is the Splitting Smart Podcast. We are here to help you resolve divorce and family disputes out of court with practical, insightful, and real world strategies. I'm Kelly Bennett, your host with over 30 years in the family law. Mediation and negotiation trenches. Saving you time, money, and stress. Each episode breaks down tools and tips to help you approach family law disputes with clarity, with privacy and efficiency. Are you in a family law quagmire? Well, you're in the right place. Let's get you on the smartest, fastest path forward. The information presented in this podcast is not intended to be legal advice. It's for informational and entertainment purposes only for legal advice. Call a great lawyer whether you call re law or someone else. Legal advice happens when the lawyer is given the opportunity to hear your specific situation and give you advice based on your unique facts. Now, let's start the show. Hey, you're listening to the Splitting Smart podcast, and today in studio I've got Sapere Pro attorney Greg Bennett, who is an expert in estate planning. And we are talking today about a subject that is, we see this massive mistake all the time that people do because they either don't want to form a proper estate plan or they don't know any better. And that is instead of having a will or a trust, and dealing with your real estate that way you just put somebody on title to the real estate. And so we're going to talk about six reasons you don't want to do that and what the better alternatives are. Alright, so you're ready to get started, Mr. Bennett? Absolutely. Why are you laughing? It's just such a silly thing that people do and they do it all the time. We see it all the time and it just, you know, from our perspective it seems so unwise. But people just don't know any better. And I think sometimes people think it's a less expensive alternative. You know, they're only asset is their home, so they think I'm not going to spend money for a trust. Why would I do it if I only own a house? I'll just put my kids on title. Sometimes it works, but other times... It's a disaster. Yeah, exactly. It's a disaster. Okay. Well you brought today six reasons why it's not usually a good idea to use title instruments, deeds on your home as your estate plan. So why don't you kick us off with the first reason? That's not a good idea. Okay. So the first reason that's not a good idea is that you lose control over your property, okay? You don't own your property by yourself anymore, or you or your spouse. Other people have ownership rights. And even though they didn't pay for anything, they are now legal owners of your property. And so you can't just sell it, right? You can't just take out a second. You can't just do anything. You have to get them either off the title or you have to get them to agree to whatever you want to do, and. That's not ideal. In the moment everybody may be getting along but you know, you and I have said for years, I mean, we've been in practice for a long time. We've always said when it comes to business formations, contracts, partnership agreements, any kind of an agreement. And I did the same thing in mediation. We want to talk about the divorce before we have the marriage so to speak, in any kind of a business or real estate transaction. Right, right. Especially if you're doing it with family. Family is like an onion and you may, you know, the onion may look nice and shiny on the outside, but it has many, many layers and hurt feelings and disputes can arise and... Oh but what do you mean? I mean, my, my daughter would never, ever. I mean, she would never do anything like that where, you know, she'd try to hold me up from selling my property or, you know, whatever, right? We've seen that exact thing happen. Seen that exact same happen. Yeah. And not only are you, exposing yourself to disagreements among the other owners, your children presumably, but you're also exposing yourself to their creditors. Think about it. If you have a child who's in debt and they don't pay their bills and they're on title to your house, that creditor could conceivably force the sale of your house to collect your child's debt. Or make refinancing much more difficult, or, I mean, a whole host of things. I think the one area that we see disputes among family members. Where you just, like I said, oh, my daughter would never, would never, cause me problems, isn't necessarily that particular family member, but it could be significant others that start putting pressure on that family member. It's tragic. Yeah, it is. Okay. Um, so. That's the first one. Loss of control. Right. So Greg, what's the second reason? It's just not generally a good idea. Well, that, that's what I was just saying. Exposure to your children's debts. Right? You don't want your children's creditors to be coming after your house. Just because you thought it would be a good idea that they own your house after you die. They don't just own it after you die. They own it while you're still alive. And that is a big problem. Right. It's a big problem. So the loss of control, the exposure to debt, to liabilities. Although there's some protection in most states, right? The homestead protection. You want to talk about that for a minute, because some people might be going, well, I've heard that you can't take my house. Okay. They can't take the first part of your house... ...in California. In California. I don't know what homesteads are in other states. Well, isn't it in Florida? It's like... It's a hundred percent. It's a hundred percent from last time I looked, but I think that's, we're in California. The homestead exemption preserves the first certain amount. I think if you're a married couple, I think it's $250,000. I'm pretty sure you know, it's been a long time. Here in California? You didn't tell me you were going to ask me about the homestead exemption. We'll have to go back and put a little, put a little footer on there. So what the homestead exemption is in California, You don't have a hundred percent of the law memorized. Yeah. And it does change periodically. No, it's real estate. It never changes. Yeah. No, the law never changes. So if you gift your children a portion of your home, that's technically a taxable gift. And theoretically, you're supposed to file a gift tax return and pay gift tax on it. Okay. People never do, but it's owed. It's owed, yeah. And the IRS could conceivably come back after you. But the main thing, the main reason is that when they sell the house, they'll have to pay capital gains on the house. . Capital gains tax. You buy a house in 1970. And for $50,000, say, okay. That house is now worth a million dollars, right? So that $950,000 of gain is taxable at the capital gains tax rate, which is huge. Okay? That's, that's like half the equity in your house is just gone. However, if instead of putting them on title, they are the beneficiaries of your trust. So you form a trust, you make them the beneficiaries and you put your house in the trust... So they're going to inherit it. So they inherit it through the trust, when you pass, they get a step up in basis. What does that mean? That's okay. I was just going to tell them. So it's step up. A step up in basis means that instead of the tax base being based on 1970s, $50,000, it's based on the date of death. So if you died in 2024 and your family turned around and sold it, you know, within a few months, they would probably be little to no gain and they wouldn't have to pay taxes on that because their tax base would be the current year's tax base as opposed to when you bought it originally years ago. And that, ladies and gentlemen, is step up basis and capital gains tax in a nutshell. Right? There you go. Oh, there you go. That's one of the main benefits of having a trust and putting your real estate in the trust. Your heirs don't have to pay the capital gains from the date that you bought it. Whereas if you, if you were to sell it and give them the money, you'd have to pay the capital gains. If you put them on title and they sell it, they have to pay the capital gains. But if you put it into trust you don't have to pay the capital gains. Yeah. Unless they hold it. I mean, if you pass in year one and they hold it for 10 years, they'd have to pay 10 years of capital gains from the date of your death, just not from the date you purchased to the date of your death. Well, and I think this demonstrates the other thing when it comes to really good estate planning is you want to have a good estate planning attorney and you want that estate planning attorney working in concert with a good CPA. Because of these very issues, right? Sure, sure. That's the first three. So what's the next disadvantage here? Well, let's say you have multiple children and you only put three of them on title because say one of them runs your business and you're going to give them your business. You don't have it. You don't have a will, you don't have a trust. It's all verbal. But one child gets the business and the other three are going to split the house. Well, what if the business goes belly up? Now three of them are on your house with you and one child gets nothing. It can cause conflict because of an unequal inheritance among the heirs. It causes conflict. And really, so when family disputes like that happen, where do they get resolved? If they're either going to be sitting in my office for mediation right? Typically, I will say that family disputes over, we call them probate disputes, when they land in my office as a mediator, they've already been to court and they're spending a lot of money and it's usually their attorneys who say, Hey, why don't we see if we can't resolve this outside of the court and talk to a mediator. And honestly, what's so funny here on this is those lawyers are calling me saying, can you please help us with this dispute? These family issues are, they're so emotional, we don't really know what to do with them, and are nobody's happy right now. Can you help me? Right. Right. This isn't a business dispute where you've got dispassionate business owners over, you know, you overcharged me on a contract or something. No, these are family members. These are siblings who have had, you know, hurt feelings since they were teenagers. Yeah. And then, and so those disputes, if they're not in mediation, where are they resolved? Right. They have to go to court. It's very expensive. Hey, before we get back to the show, would you like me to serve as your personal mediator? You know, where I help you and your spouse or your soon to be ex navigate some pretty important family law issues, deciding things about your kids, how to split up your assets, your debts... all outside the chaos of the court. How do we do that? We do it faster, way more economically and with absolute civility and confidentiality. If you want to know more, go ahead and hit that link below and you'll find out how you can connect with me and we can talk about what's most important to you and your future. Now, back to the show. Yeah, exactly. All right, what's the next one? Lack of flexibility in your estate plan. What do you mean? So if you have, like three of your kids on the house and you have four kids. Then what are you going to do? You can't, you can't get them off if they're not willing to come off the house. Right. Like I talked about before. You would have a dispute with them trying to, just trying to get them off and what do you do with the fourth kid? Selling property to fund long-term care? How would you do that if the children aren't willing to come off? Once they're owners, they're owners and you would have to take them to court to partition the property back to yourself or a quiet title back to yourself. Such a pain. And you don't, well, it's not just a pain, but you don't want to sue your children, you know, Or your siblings. I will say where I've seen this quite a bit in the past or those disputes and they come to me, not because I do that litigation, but because of the mediation aspect on it. It's a form of family mediation. And it looks like this. And I guarantee you members of the audience are going to resonate with this. So a parent becomes elderly and becomes infirm and can't live independently anymore. And then there's, there's no money really to put them in assisted living and nor do they want to be there. One adult child and their spouse will move in with mom. Let's say it's mom and they might sell their own house and they move in to provide full-time care and all the siblings are on the house, right? Right? But they want to expand the house because there's not enough room for all of them to live in this house. So we get in a debate there. Or we go the other way where we get mom's house sold right up front and take the money and expand our own homes. And then when the, estate goes to probate, because there was no estate plan, right? So mom dies, there's some assets there, and now everybody starts arguing over them, right? And there's that resentment. Between some of the siblings of you're just trying to take over and steal mom's property to the caretaking and to the caretakers. The response is, are you kidding me? Do you know how hard this was? I was the caretaker. I was just trying to do the right thing, and now you were accusing me. So the escalation in this scenario is really a nightmare, right? And so how can an estate, a proper estate plan, a well done trust, for example? Eliminate all this nonsense that goes on all the disputes, because I know there's a, there's a piece there where, where you write it in pretty frequently if anybody contests... Right. Then what happens? Can you explain that a little bit? Right, so if you put your kids on title, then anyone can sue, anybody, there's no limitations on who can sue. So if somebody has hurt feelings, like the scenario you were talking about where you have a caretaker and everyone gets an equal share, but they think they should get more because they they took care of mom for the last 10 years, which is not an illegitimate claim, depending on the circumstances. And of course they may have been living in mom's house for free. I mean, all these things, all these things have to come into consideration. But there's no agreement, right? There's nothing in writing in advance. So, you know, the one side says, well you live there for free, you shouldn't get anything extra. Then the he and he or she says, "Well, no, I took care of mom for 10 years. I should get an extra share," or whatever. Okay. It just causes litigation. And we have a family friend right now who's in this exact scenario with the siblings. And one sibling sued the other siblings because he or she thought that he or she should get more of a share of the house. And they're all on the house. And they're all in the house. There's no trust. They sold the house. There's proceeds sitting in a bank account somewhere, and they're fighting over how much each should get. It's, and it's just, it's breaking the family apart. So what is that mechanism inside a trust that can stop the fighting? So even if we don't have a bunch of kids on a, on title to a home. Let's say we do this properly in a trust. What are the mechanisms in a trust to shut down any sibling disputes? Well, first of all, you have everything in writing in advance. Okay? So you put the house in the trust. You say who in the trust gets what? If one person is the caretaker you can assign additional share to that person if that's what, what the, you know, the person forming the trust thinks is fair. You get it all in advance. And it's all in writing, so you know exactly what mom wanted. Yeah. And the second thing that I think that you're getting at is you put a no contest clause in the trust. Every trust, every trust I've ever seen has a no contest clause. Mm-hmm. And basically what that means is, unless there's some actual wrongdoing, which there very rarely is, if you contest the trust and you lose, you get nothing. Okay. The judge just says, you contested the trust. There's a no contest clause in the trust. So your share goes to your siblings. So what that does is it's a disincentive... Shuts it down From people suing. Now people still sue. I mean, we still have a probate court and we have probate judges who are very busy. Right. And so there are still people who do that, but it's a disincentive. So the combination of having everything in writing in advance so everyone knows exactly what mom wanted and the no contest clause would prevent a lot of these shenanigans. Mm-hmm, mm-hmm. Exactly. So people think that they're cutting corners, they're saving, you know, a lot of money, you know, $3,000-$4,000 by not doing a trust and just putting everybody on title, and then it's inevitable that a dispute erupts... Can you give me an estimate? I have a number in my head, but of what that could look like when that dispute happens and now the siblings or the heirs start suing each other? I mean, like I always tell my litigation clients, I can't tell you how much it's going to cost. It can run anywhere from the initial $10,000 deposit if we get it settled super early. Right? I mean, it could be a hundred thousand dollars. You can't tell if the other side decides to be super ornery and do a bunch of discovery and take depositions. I mean, you could suck all the equity out of the house. And all because we wanted to save $3,000 or $4,000 and not doing a trust. Right, right. So that's, that's the penny wise pound foolish. Exactly. Short-sided in the extreme. We've done another episode talking a bit more about how to deal with estate planning when you're in the middle of a divorce. You're going through a divorce and you have a couple of rental properties, but for whatever reason, usually somebody's credit wasn't great. One person of the couple got the loan on the rental house in their name and title is only in their name and they never moved title. But this was all done during marriage and now we get real smart in the middle of a divorce and think, well, if something happens to me, the house is only in my name. So I'm going to go ahead and put our son on title to this house and his wife. Tell me what you think about this scenario. Well, first of all, it's fraud. And obviously that's because the other spouse has a 50% undivided, one half interest community property. Even if their name's not on title? Yes, ma'am. So no, that won't work. You're just buying a litigation if you do that. Yeah. Second of all, you know, at least from from my perspective, and I know from your perspective, the more upfront you are, the more honest you are, the more amicable you are in your divorce, the faster, easier, and cheaper it's going to be. Because if you are playing these games, you just, the other side just has to go into court and have a judge unwind it. And then you look horrible in front of the judge. Yeah. You know? Yeah. I mean, now you're the black, now you're the bad guy in the black hat. But I think the other thing is a lot of times people will, be self-represented at least for a little bit. Um, and we have a snide saying for that, that, you know, what, what is it? The self-represented party has a fool for a client. Right? But that's not always the case. Some, some things are appropriate to self represent, but a lot of times people walk into that unknowingly, so it's not necessarily fraud, right? They think, they don't realize that in the middle of a divorce there are things that are locked on down solid, under the automatic restraining orders that are what we call the financial restraining orders, meaning you can't change insurance, you can't cut anybody, you can can't sell large items and hide the money and all this sort of thing. There are some rules that go into play and this is one of them, but I think people step in it looking for a cheaper alternative than to doing proper estate planning. And so... If you're saying the person's doing this without, you know, malice aforethought, right? Then... Oh, oh, would you please explain malice aforethought to our non-lawyer listeners...? Dang lawyers, that means intending to do something wrong intentionally in advance. Why didn't you just, why didn't you just say that? Because I like sounding fancy. Okay. No, but what I'm, what I'm saying is that if they're, if they're not intending to do something wrong, they're not intending to do something fraudulent and they're just, they're just mistaken. That can be unwound. I mean, you can unwind it. It's maybe, maybe they did it before they did the divorce just because they wanted the house to go to their child and they didn't realize that the other person had an interest. You because it was in their name and only in their name. Yeah. Maybe they're from somewhere else where there isn't community property. Yeah. You don't know. Well, and then the other thing that's kind of interesting is, and we've had these cases, when they're, when you're in the middle of a divorce and the case has not completed and there are no orders, dividing assets and debts, and one spouse dies in the middle while the divorce is pending, then it all shifts at least in California, it all shifts to the spouse because you're not divorced yet. Right? It all all shifts to the probate. I'm going to show this, let me turn the camera. Did you bring your dog bone with you today? Yeah. Yeah, he just brought me his bone. Will you please come get this? Let's see. Come on. I think we can see him. Come get, yeah, we've got our studio lab in the house. You can't see him, but he is running down here. We'll, we'll get a shot of him later. Thanks for the bone. And he's off. Back to this issue. So where we have a divorce going on and there's an estate plan in place right. Where the spouse gets everything. Right? Or even when we don't have an estate plan in place, we don't have a will, we don't have a trust. And there have been no determinations on the division of assets and debts, and the parties are still married, of course they're still married. They haven't been divorced yet. I'll talk about that in another episode when we can get you divorced, even though, the assets and debts haven't been divided yet. In that scenario. Yeah, everything will go to the spouse. That's still, even though you're in the middle of a divorce. Now the one thing that I have seen is, I had a case not too long ago where unfortunately I had the husband and they had, two small children. And these folks were in their thirties and unfortunately the wife committed suicide in the middle of the divorce proceedings. I remember that. It, it was, heartbreaking. Yeah, it was heartbreaking. We had agreed prior to this terrible event to, what did we do? We had divided some one part of the asset. My client bought her out of this particular asset, and I think. She received about a hundred thousand dollars, as I recall, for her half of this asset that my client wanted to keep. So that happens in divorce. We may not have the whole case finished, but sometimes we'll divide certain assets as we go. And so anyway, that happened and so I got the call from the client, you know, and then as we were talking in the weeks after this horrible scenario, he said what happens with that a hundred thousand dollars I paid? And I said, super interesting question, right? Because he paid it to her and we had done it under a court order. We had a, what we call a stipulation and order, where we had an agreement and this is how much we'll divide this asset. We'll confirm the asset to him. And she'll be bought out of her half of it for a hundred thousand dollars. And then the court signed it off as, and it became a court order. The agreement, that's why it's called a stipulation and order. So the court signed off on this and it became an order, which means there was a legal finding that this a hundred thousand dollars that was paid for this asset was her equalization and her separate property, and that the asset that he bought her half of was now his separate property. Okay, so we had a legal determination, even though the rest of the case, we still had a business that was at issue. You know, dividing the business and other assets, marital home, all of that. But why is it a, why is it even an issue? because everything now goes to him. So he gets both the money and the house. No, sir. And, and, and let me tell you why. See, that's why I'm not a family law lawyer. So the reason it became an issue, is because she put, you'll know the minute I say this. She put the money into a bank account and had a payable on death clause. And it was her to her sister. So he gets the house, he bought her out, she gets the money... I'm not saying what asset he bought her out of, but Whatever the asset was, he keeps it, it's his separate property. Hundred percent. And the sister gets the a hundred thousand. because it was an adjudicated... Right but here's the really interesting piece of this. Under the family trust, if she passed, he would've gotten everything right? But that one asset had been adjudicated. And his question, which was really a valid question was why should the sister get the $100,000? Even if she was divorcing me, why wouldn't it go to our children? And I said, because she didn't leave it to your children. Now obviously our guess is because she was a good mother. She loved her children to death, right? She just clearly had some, psychological issues and challenges, some mental health challenges. She probably was leaving it in the name of her sister and trusting her sister to do the right thing for the children. However... That's not the way she put the TOD. It was just in the name of the sister. So in that scenario, what would happen with that money? The sister would get it. Yeah. So I mean, it just kind of goes to show that when we're talking about these different types, and I know that kind of got us off track a little bit, but we're talking about people putting you know, family members, friends, whatever, kids on a deed to your house instead of doing a proper estate plan. This was kind of an example of that. It just happened to be a bank account that was put in the name of a sibling as payable on death. But there are small children that probably mom wanted to have benefit. She could have put that ITF, you know, P-O-D-I-T-F to the sister. Of course. Yeah. Payable on death in trust for, is what I was saying. So I think the kind of the moral of the story here is no matter what, it seems to me that it is at least worth a call to an estate planning attorney to say, "here's what I'm thinking." because, some of these things are okay, you know, like the bank account situation. But you don't want to do it in a vacuum. You want to make sure that we are really being considerate of all the circumstances. because boy, it can go south and up. Right? Especially if you have a small estate. If you have a small estate, then there are summary adjudication rules, at least in the state of California. And a lot of times it's what does summary What does adjudication mean? That means you can bypass a bunch of the probate stuff and it doesn't take a whole a lot of time and a lot of money. Summary adjudication is a legal way of saying a streamlined process. Thank you. Let's close it out by talking a little bit about what the better route is in most of these scenarios. I mean, I just mentioned one, right? At least if you're thinking about a different route without a full blown estate plan, I'd recommend you call an estate planning attorney just so you don't step in it on accident. But what other kinds of things do you think we should be considering with this? Well, I, I really think primarily if you own real estate, okay. And there's really much of any equity in the real estate because it's going to keep going up. You're paying your loan down. Property values go up. You should really put your real estate into a trust, a revocable, what we call a living trust or a family trust. And what that does is it means you're, you still control it, right? You're still the owner of it in the sense that you can do whatever you want with it. You could sell it, you can refinance it, you can do whatever you want with it. But when you die, it goes to whoever you list as your beneficiaries in the the trust and they get a step up in basis. There's great benefit to having a trust and you know, some trusts can be expensive if you've got a lot of assets and they've gotta do some funky dory things, right? But most trusts aren't very expensive. I mean, if you're really strapped for money, you could even go to a form service online and get a, get a trust, make sure you get a California trust. Follow the instructions. Things have to, you're not to be notarized, You're not recommending Legal Zoom, are you? Something like Legal Zoom. Okay. I'm saying if you are super strapped for money. Yeah. Really. You need a lawyer to write your trust. It's complex taxation law and you never know when you're going to, you know, trip on your own feet. But I'm just saying that as an alternative, if you're really than stressed, it's better than having nothing. It's better than putting it on a will. A will does not bypass probate. A trust is really the way to go. And not that expensive. Speaking of which, probate, you know, people here, what does that term mean and why do we want to stay out of probate? There's a limit. Your estate can be up to a certain value worth a certain amount of money. So you take all of your debts and your assets and you subtract the debts from your assets, and then you get the value, right? Okay. So I'm, I'm just ta telling it in very simplified terms. So, in California today, at the time of this recording do you remember what the, what the probate limitation? Like $190,000? 184,500. Yeah, something like that. So we're in California and if you own a house, if you own a house and some cars, if you own a house and a rental house, what about retirement account? Uh, yeah. Does that count? It does. As part of the number. So it doesn't take much to go over the maximum. And what that means is what? That, if there's no, if there's a will, but your estate's worth more than the 185,000 or so... It has to go through probate, which is basically a lawsuit to adjudicate the will. In other words, the judge has to come in and say, yes, the will's valid, and this is who gets what. Okay? You have to go and have a judge do that. But if you have a trust, you bypass that whole judicial process. And you just have whoever you set up as the administrator of the trust, sends out, notices, divides the money. It's super, unless there's a conflict, unless someone's disputing it, it's super fast. And then we hope you have a no contest clause. Right, right. Exactly. Alright, very good. Well, it's been super informative. I know that it's usually seen as the easy route to just put somebody on title to property, but man, you gotta think twice. Yeah. I strongly recommend against it. At the very least, go in and, and have a lawyer listen to it. Right. A real estate and or estate planning attorney, especially an estate planning attorney. That would be probably the wisest thing to do. Absolutely. Yeah.