Two most commonly used methods to Help your children avoid the stress of probate court is using a joint ownership by adding children to the deed or via revocable trust. Which one method is recommended?
If you add your child as a joint tenant on your house, both of you will have equal ownership of interest on the property. When one of the joint tenants pass away, their interest immediately ends and the other tenant assumes ownership of the entire property. The advantage of this method is the avoidance of probate. The disadvantage of this method is exposing your property to children’s creditors, including children’s spouses. You are also passing your basis in the property to your children, thereby eliminating a very important income tax planning tool called a “step up” in basis.
Should you decide to set up a revocable trust with your child as the beneficiary, after you pass away, the property will go to your child without the need for probate. A trust guarantees you the right to live on the property. It will also protect the property from children’s creditors during your life and after you pass away. It is recommended that your trust will continue for at least three generations, so these benefits will pass down to your grandchildren. Also, one of the most significant advantages of doing this planning with the trust, is that your children will get a step up in basis in the property, and will result in elimination of capital gain tax on the sale of the property.
Generally. Elder Law Attorneys and Tax planners recommend setting up a Trust for the flexibility and protection it provides for you and your child, but speak with a capable elder law attorney before deciding which route to take.