Altruism guides the ethos of sharing, a principle ingrained in our psyche. And by and large, it rings true.
However, if you contemplate traversing the zenith of sharing—a move entailing the incorporation of a co-owner onto your property deed—it’s imperative to navigate the ensuing repercussions judiciously. Comprehend that in the act of deeding someone, you bequeath upon them the same “bundle of entitlements”—command, gratification, possession, exclusion, and disposition—as you wield as a property possessor. Prior to extending such a privilege to a beloved associate, it behooves you to engage in discourse with a seasoned estate attorney and your mortgage financier. This course of action is essential to not only apprehend your prerogatives but also to ascertain the judiciousness of this maneuver.
Herein, we present five facets meriting contemplation prior to the enlistment of an additional party onto your property deed.
1. You can’t take it back
In the act of appending an individual to the deed, you transmute the mantle of ownership, either in its entirety or partially, unto their purview. Once executed, retraction of this action is contingent upon the concurrence of the incorporated party. The co-owner retains the authority to secure a loan against the property, initiate its demolition, or even vend their stake in the estate. In certain scenarios, avenues for recourse may be exceedingly limited.
Even if your division of interest in the property is partial, the newly deeded individual assumes absolute dominion over their share and retains the potential to instigate a property sale by virtue of their control. Should the need to refinance or liquidate your abode arise, it is imperative to secure the consent of the added party. This may give rise to prolonged and financially taxing legal disputes, ensnaring the property within a protracted legal quagmire. It is crucial to attain a comprehensive understanding of the implications and ramifications before appending your signature to the deed.
2. You need permission from the lender
The legislative landscape does not proscribe the act of including additional parties onto a property deed encumbered by an existing mortgage. Mortgage institutions possess extensive familiarity with deed alterations and transitions. Most lenders encompass a stipulation known as the “due-on-sale clause,” affording them the prerogative to demand immediate loan repayment in the event of deed transfer or property sale. When you extend the deed to encompass another party, you effectuate the transfer of fractional ownership, which could trigger the activation of the “due-on-sale” stipulation.
It is incumbent upon you to acquaint yourself with the regulations pertinent to your unique circumstances. Obtaining explicit authorization from your mortgage lender prior to deed modification is non-negotiable. (For additional insights, refer to: “The Value of Periodic Consultations With Your Mortgage Lender.“)
3. Exposure to additional liability
Consider a scenario wherein you opt to induct your sibling onto the property deed. Should they default on tax obligations, accrue tax liens, grapple with creditors, or navigate the tumultuous waters of divorce proceedings, the Internal Revenue Service (IRS), their creditors, or their former spouse could assert a claim to your residence—or at the very least, to their apportioned share. In such circumstances, the aggrieved entity may impose a lien on your property with the objective of coercing a sale to recoup outstanding debts or impeding property liquidation, thereby obstructing your ability to vend.
Furthermore, the act of appending an individual to your property deed can potentially precipitate income tax obligations upon the eventual sale of the domicile.
4. IRS gift taxes may apply
Upon the inclusion of an individual onto your property deed, the Internal Revenue Service (IRS) categorizes this act as a charitable bestowal. The recipient thus becomes subject to IRS edicts governing gift transactions. As of 2018, the IRS has stipulated a permissible annual gift threshold of $15,000 per person. Gift exchanges that surpass this delineation are susceptible to gift tax levies.
The key takeaway is this: Prudent consultation with a tax attorney or a Certified Public Accountant (CPA) is indispensable prior to deeding another party to your property, as it ensures a comprehensive grasp of the implications and forestalls unforeseen financial entanglements. (For further enlightenment, peruse: “Crucial Facets of Gift Taxation.”)
5. It can get complicated
Unforeseen hazards and intricacies loom large in the realm of co-owner deed inclusions. It is vital to bear in mind that this transformation transmutes you from sole proprietor to joint proprietor. This paradigm shift may engender repercussions, potentially impacting your eligibility for property sale or refinancing. Moreover, for homeowners advancing in years and approaching retirement, asset transfers can cast a pall over Medicaid eligibility.
Another facet necessitating contemplation is that deed inclusion does not entail commensurate responsibility for the debt. In the absence of an amendment to the original loan agreement, sole responsibility for repayment continues to rest upon your shoulders, while the other party enjoys ownership entitlements.