Think Twice Before Adding Someone to Your Pennsylvania Home Deed

For many Pennsylvania homeowners, adding a loved one—such as an adult child or a new spouse—to the deed to their home may seem like a simple way to plan. It can seem like an easy way to avoid probate, reduce taxes, or ensure the property passes to the right person.

But changing a deed is not just paperwork. It is a legal transfer of an ownership interest in your property. Once someone is added to the deed, that person generally becomes a co-owner immediately. Depending on how the deed is prepared, that decision can create significant legal, financial, tax, and family consequences that may be difficult or expensive to undo.

You Give Up Sole Control

Once another person is added to the deed, you no longer have sole ownership of the property. Even if you purchased the home and paid all of its expenses, the new co-owner acquires a legal interest in it.

That can affect your ability to sell, refinance, mortgage, or otherwise deal with the property. In many circumstances, the cooperation and signature of the other owner will be required.

And if you later change your mind, you generally cannot simply remove that person’s name from the deed. The co-owner ordinarily must agree to transfer the ownership interest back to you.

Their Financial Problems Can Become Your Problem

Adding someone to your deed may also expose the property to problems arising from the new co-owner’s finances.

If that person is sued, files for bankruptcy, has unpaid taxes, incurs significant debts, or becomes subject to a judgment or lien, their interest in the property may be affected. Those issues can complicate a future sale or refinancing and may create problems you never anticipated when you added the person to the deed.

Divorce can create another complication. Depending on the circumstances, an ownership interest in real estate may become an issue in a co-owner’s divorce or equitable distribution proceedings.

There May Be Significant Tax Consequences

Adding someone to a deed is often done with the hope of saving money later. Sometimes, however, it can produce the opposite result.

Transferring an ownership interest may have consequences for the Pennsylvania realty transfer tax, the federal gift tax, the Pennsylvania inheritance tax, and the federal capital gains tax. Some transfers qualify for exemptions, while others do not.

There can also be an important income-tax consequence. Property inherited at death generally receives favorable treatment through an adjustment in its tax basis. Giving away an interest in property during your lifetime may cause the recipient to receive your existing tax basis instead, potentially increasing the capital gains tax if the property is later sold.

The precise result depends upon how the property is titled, who is being added to the deed, how the property was acquired, and other circumstances.

It Can Affect Medicaid Eligibility

Another frequently overlooked issue is Medicaid eligibility.

Medicaid generally applies a 5-year look-back period when determining eligibility for certain long-term care benefits. During that period, transfers of assets for less than fair market value may be reviewed.

Adding someone to your deed without receiving fair value in return may be treated as a transfer of part of your home. Unless an exception applies, that transfer could result in a penalty period that delays eligibility for Medicaid-funded long-term care.

This can be particularly serious when a homeowner later needs nursing home care and discovers that a deed change made years earlier has affected their eligibility.

It May Not Accomplish What You Think It Does

Perhaps most importantly, adding someone to a deed is not a substitute for comprehensive estate planning.

There may be better ways to accomplish your goals, including a properly drafted Will and other estate-planning techniques tailored to your particular circumstances. The best approach depends on your family, finances, tax considerations, long-term-care concerns, and what you ultimately want to happen to your property.

A deed can be relatively easy to change. The consequences of changing it may not be nearly as easy to reverse.

Before adding anyone to the deed to your Pennsylvania home, speak with an experienced estate-planning attorney so that you understand the consequences and select the option that best protects you, your home, and your family.

At the Law Offices of Daniel J. Siegel, LLC, we help individuals and families evaluate these decisions as part of a comprehensive estate plan tailored to their specific needs and goals. Click here to email us or call us at 610-446-3457.