21 Feb How do we add our sons’ names to our home’s deed?

Q. My wife and I are retired and want to leave our home to our two boys unless we sell it. We want to add their names to our deed. Does this mean that we as owners incur no changes in our property taxes or other home obligations? We do not want them to have to deal with any paperwork or expenses but we want to avoid probate without opening a trust. What do we need to know?
— Trying to plan

A. We’re glad to see you’re planning ahead, and there are a lot of consequences to consider.

By adding your sons’ names to the deed, you are making a gift of an ownership interest in your home.

You are permitted to gift $15,000 per year per person without using any of your federal lifetime and death exemption, which is currently $11.58 million, said Catherine Romania, an estate planning attorney with Witman Stadtmauer in Florham Park.

If you gift more than that, you will use a portion of your exemption, but you will not need to pay a tax, she said. You will need to file the IRS Form 709, United States Gift (and Generation-Skipping Transfer) Tax Return by April 15th of the year following the year you make the gift unless you obtain an extension.

If you transfer property during life by gift, the donee obtains the property gifted — or percentage of the property gifted — with the donor’s basis, she said.

“Thus, for example, if you and your spouse purchased your home for $250,000 and made $50,000 of improvements so that the home’s basis is now $300,000, and gifted a one-half interest to your two sons, their basis in the 25% interest in the home would be $75,000 each,” Romania said. “Basis is different than the value of the gift.”

To effectuate the gift to your sons, you and your wife would need to execute a new deed, Romania said.

The deed would be from you and your wife to you, your wife and your sons, indicating the ownership percentage and whether the ownership is with rights of survivorship. The deed should be recorded in the county clerk’s office where the property is located, she said.

Because you and your wife still live in the home and pay the real estate taxes, you may still take the deduction. However, when you sell the home, your sons will have to sign the paperwork as owners along with you and your wife, and you and your wife will only receive one half of the proceeds because you now only own half the home, she said.

“Moreover, because the home is not your sons’ primary residence, they do not qualify to exclude any gain from the sale and thus have to report any capital gain from the sale of the home,” she said. “Of course, they can gift back to you the net proceeds from the sale and file the proper gift tax returns, but that will only make you almost whole.”

Although you do not want them to have to deal with paperwork, there will be paperwork with the transfers, Romania said.

Also keep in mind that transferring real estate during lifetime may affect your ability to obtain Medicaid benefits if the transfer is made during the five-year look-back period, she said.

“If you transfer property at death, the beneficiary obtains the property at the date of death value and thus if it is sold at that value, there is no capital gain to report by the beneficiary,” Romania said. “Moreover, if you sell it during your lifetime, there is no need to be concerned about your sons being owners and being involved with the paperwork and receiving one half the proceeds.”

Romania said probate in New Jersey is not a cumbersome process, in particular if you have a properly executed will. Plus, probate or administration will be necessary if you have any property that passes without a beneficiary designation or by operation of law.

“Probate is also not costly; in fact, the cost of probating a will in New Jersey is probably roughly the same as the cost of recording a deed,” she said. “Placing the property in a revocable trust would avoid probate and provide you with the other benefits you are seeking.”

Email your questions to .

This story was originally published on Feb. 21, 2020.

NJMoneyHelp.com presents certain general financial planning principles and advice, but should never be viewed as a substitute for obtaining advice from a personal professional advisor who understands your unique individual circumstances.