Don’t Put Your Kids on Your Deed: The Expensive Mistake an Estate Planner Sees Most

Maybe you’ve already done it. You’ve owned your home for decades, and someone told you the easiest move is to add your kids’ names to the deed. Or maybe you have a trust and assume you’re covered. You might not be.

I sat down with Hamlet Ohandjanian, an estate planner I work with, and asked him the biggest mistake he sees seniors make. His answer was exactly this: well-meaning parents putting their kids on the deed without knowing what it could cost them later.

I see the other side as a real estate agent. Families get forced into fast decisions about a house, and fast decisions are where money gets left on the table. So here is what I call the four-question house check, four questions from my conversation with Hamlet that decide whether your kids inherit a house or a tax problem. The ideas apply in every state, and question three is the one even people with a trust get wrong.

Question 1: Whose Names Are on the Deed?

Hamlet put it plainly. Parents put their children’s names on the deed assuming the house will pass to them smoothly. They’re partly right. The kids get the house, but they can also inherit the capital gains tax.

Here’s how that happens. Say you bought your home years ago for $200,000, and today it’s worth $1.2 million. That’s a $1 million gain. When a house sells, the government taxes the gain. That’s capital gains tax.

If your kids inherit the house after you pass, the tax system usually resets the starting price to the home’s value on that day. That reset is called a step-up in basis. If they sell for $1.2 million, there’s little or no capital gains tax. You can read more about it in my post on the step-up in basis for an inherited home.

But if you put their names on the deed while you’re still here, it counts as a gift. There’s no clean slate. They keep your old $200,000 starting price, so they could owe tax on most of that $1 million gain. In the video I estimate that can run $150,000 to $200,000 in federal tax alone, and more in a state like California. Your CPA can run the real numbers for your family.

The tricky part is timing. Nobody pays anything the day you add your kids to the deed. The bill shows up years later when the house sells. Hamlet told me this is one reason he sees properties end up in probate auction: the heirs can’t cover the tax, and the house gets sold under pressure.

Question 2: What Happens If There’s No Trust?

Hamlet’s one-word answer was “disaster.” When someone passes away without a trust, the house usually goes through probate. Probate is the court process that decides who gets what, and in California it takes time, costs money, and strains families.

• Time: Hamlet says probate in California averages 9 to 18 months, and he has seen cases run four years or longer.
• Cost: California sets attorney and executor fees by law. On a $1 million estate, the attorney’s statutory fee is about $23,000, and the executor can take about the same. That’s roughly $46,000 before any other costs.
• The sale itself: a judge sometimes has to approve the sale, and other buyers can outbid your buyer right in the courtroom.
• Family strain: in Hamlet’s words, siblings can fall into bad graces, and relationships take damage that lasts.

If you don’t have a trust, make an appointment with an estate planning attorney. If you’re already in the middle of it, my post on selling a house during probate walks through the real estate side.

Question 3: Is Your Trust Funded?

This one surprises people. Having a trust doesn’t always mean your house is in it. “Funding” a trust means your assets were moved into it. For your home, that means a new grant deed was recorded that puts the house in the name of the trust. Hamlet said it bluntly: “If you have a living trust and it’s not funded properly, I’m sorry to say, you really do not have a living trust.” If it isn’t in the trust, it isn’t protected.

Here’s the simple way to picture it. A trust is like a safe. Signing the paperwork builds the safe. But if the deed to your house was never transferred into it, the house is still sitting outside the safe, and the trust can’t protect it. I see this with inherited homes over and over. The family is relieved because Mom and Dad had a trust, and then they find out the house was never put in it. That can send the house into the same probate process.

Check your trust this week

1. Pull out your trust binder and find the schedule of assets.
2. Look at your deed. If your house is in the trust, the deed should show the trust as the owner, usually with your name as trustee.
3. Check the other assets too: bank accounts, investment accounts, and anything valuable that should be listed.
4. If the deed doesn’t show the trust, call the attorney who drafted it.

Question 4: Do Your Kids Know the Plan?

The best trust in the world doesn’t help if nobody knows it exists. Hamlet said adult children should know four things: whether a living trust exists, who the successor trustees are, who the beneficiaries are, and who helped Mom and Dad set it up.

I asked him what age is right for a trust. His answer: “You get a property, you get a trust. Age is irrelevant.” He also said estate planning isn’t a morbid conversation. It’s planning.

My advice is one sit-down with your kids. Cover where the documents are, who the successor trustee is, and who to call. If you’re the adult child, you can open the door gently: “Mom, if anything ever happened, who would you want me to call?” If you’ll be the successor trustee one day, read what a successor trustee should do first.

A Note for Leisure Village Homeowners

Leisure Village homes were built between 1973 and 1984, and many owners have lived in theirs for decades. Long ownership usually means a large gain, so the deed and the trust matter even more here. When a Leisure Village home is owned by a trust, the Leisure Village Association also asks for the paperwork naming the trustees during escrow, so having that paperwork organized saves your family time. See Do I Need a Trust in Leisure Village? and what the Association needs during escrow.

The Big Takeaway

Your home is likely the largest asset you’ll ever pass down. One conversation with an estate planner now can save your family a lot of money and a lot of stress later. Before you add anyone to your deed, ask an attorney whether a funded living trust does the job better. For the tax basics, the IRS explains basis rules in Publication 551, Basis of Assets.

Frequently Asked Questions

I’m not an attorney or a CPA. This is general education about the real estate side, not legal or tax advice. Tax and probate rules vary by state and change over time. Talk to an estate planning attorney and a tax professional about your own situation.