QUESTION: What is the impact on the tax burden of my child if I add his name to the deed [of my home]?

ANSWER:

For most people, "there are a lot of negative impacts and no real positives" to adding a child’s name to the deed, says Kevin Flatley, director of estate planning at Fleet Bank in Boston.

Adding your son’s name will mean he owns half your home. It will also mean he automatically becomes sole owner upon your death, eliminating the need for the property to get tied up in probate court, says Eric Strulowitz, an attorney and certified public accountant in Roseland, N.J.

But unless you’re very wealthy, or use this strategy early, it won’t save you much in estate taxes. True, the value of the half you give your son will be considered a gift, rather than part of your estate. But under gift-tax rules, you’re only allowed to give $10,000 ($20,000 for a couple) tax-free to any one individual during a year. The remaining value of that half will simply be deducted from your $675,000 estate-tax exemption anyway. The other half — though it becomes your son’s at your death — will also be considered part of your estate.

This strategy might be worth the drawbacks if you know your estate is going to exceed the exemption, your house is very valuable, and you’re willing to pay gift taxes now. Then, the amount you spend on gift taxes will be removed from your estate. (For an explanation, see our story "Why Gift Tax Beats Estate Tax.") Also, if you expect the house to appreciate a great deal before you die, giving half to your son now will reduce the amount of gain attributable to your estate by 50%.
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