Q: I want you to put my kids' names on the house so they won't have any probate or living trust hassles when I go.
A: Transferring the house is very easy to do. It just means doing a quitclaim deed from you back to all of you placing title in joint tenancy with right of survivorship. Thus, if we lose you, title will be transferred by recording a death certificate.
But there are a number of issues that warrant consideration.
If there is a mortgage on the property, such a transfer could trigger the "due on sale" clause which gives the lender the right to demand full payment of the loan on the transfer of the house. Foreclosure is possible, or at the very least, a refinancing of the house.
The mere act of putting someone else's name on the property is deemed a gift. Thus, if a recipient received more than $10,000 of value (market value less loan), a gift tax is due and payable amounting to about 45% (both state and federal) of the value over $10,000 unless the appropriate tax forms are timely filed.
A legal transfer has occurred, so the giver does not have the legal right to demand the "gift" back. In fact, even if the kids deeded back their interest, each of them has made a gift and could be subject to gift tax liability on that same property.
After putting the kids' name on the property, each child's share could be affected by such things as a divorce, creditor's claims, bankruptcy, etc. If an "outsider" does take control of that child's share, the third party could even force a sale of the property unless the other titleholders cash out the "interloper."
Yes, it has happened in Fort Collins where kids did kick Mom or Dad out of the house or forced the payment of rent. And yes, it is legally possible that once a child becomes an owner, through a partition suit the house can be ordered sold and the net proceeds divided among the owners.
Now that brings up an even more latent but devastating point. If an owner sells his or her principal residence (and otherwise meets the statutory requirements), a single person can avoid tax on the first $250,000 of gain (the difference between the selling price and what was paid for the property). If the kids inherit the house, they can avoid tax on your gain because a new basis is given to them representing the value at the date of death, not what you paid for the property. But if you put their names on the house, for tax purposes, each child steps into your shoes, so each assumes your tax basis and later when the property is sold (hopefully either with your approval or after you die), the kids will have to pay tax (about 20% on the gain) unprotected by the $250,000 tax shield that you have.
What happens if the unexpected occurs and a child predeceases you? That share reverts to the others on title who are living, thereby "disinheriting" the descendants of the deceased child. You cannot just change your Will because the joint tenancy designation on title takes priority over what you say in your Will. And what happens if one or more of the living kids refuse to sign a deed readjusting title or you forget or do not get around to taking action?
Further consider what happens if you need the equity in your house to live on. You cannot tap it through things like a "reversed mortgage" unless all the kids cooperate.
I have run out of space although I could continue to list problems. Please reconsider.