Is there a disadvantage to you when you are transferring the deed to your house? There are always advantages. So we’re going to look at one disadvantage that there may be when you transfer the title or transfer the deed of your house by adding somebody onto the title of the deed. Oftentimes, people add their siblings, their kids, or someone close to them to their property by using joint tenancy and the right of survivorship to avoid probate. That could be a good thing or a bad thing.

Let’s look into that. By the way, when there is a deed as joint tenants with a right of survivorship, which means that, let’s say there are two people on the title, if one of them passes, the other person on the title gets the house, and vice versa, So that’s a joint tenant with the right of survivorship. By the way, I’m not an attorney or a CBA, so if you have a situation where you need to transfer a title and are looking for information, I would strongly advise you to consult with an attorney who is knowledgeable about transfers and titles transfers, or consult with your accountant or another professional.

My video is just to give you some basic information on the advantages and disadvantages of a title transfer. So the best way for me to explain it to you is through an example. Let’s say a dad has owned the house for a long time, and he wants to add his kids to the title of the deed of the house. So whenever he passes along, the kids will have the house, and they will try to avoid probate. Well, that’s a good thing and an easy way to do it.

But here’s a disadvantage that may arise in the future. So, say the father bought the house for $100,000 25 or 30 years ago, and now, 25 years later, the house is worth $900,000 or a million dollars, which is very possible in California because homes appreciate very quickly. And as you may know, the average home appreciation nationwide is about 4% per year. So in 30 years, the house will have appreciated a lot. But in that scenario, let’s say that dad bought the house for $100,000, and in today’s market, it’s worth a million dollars. Assuming the father added the children as joint tenants with the right of survivorship, and assuming the father dies today, the house obviously belongs to the children, or to the children, or to whoever the house was transferred to; the disadvantage is if the children do not want to stay in the house. They already have a house, or the dad is out of state, so they don’t want to move and want to sell the house. So now when the kids sell the house, the value of the property is a million dollars, and dad bought the house for $100,000 way back when. So, in this scenario, the capital gains tax, or the capital gain on this property, is $900,000. So if the kids sell the property today, they may be liable for up to $900,000 in capital gains tax, which is very, very high today, especially in California. Now, one way to avoid that, or one possible way to avoid paying taxes, is if the dad had a will or a living trust. As a result, when he dies, the property will be transferred to his siblings, children, or whoever is named in a living trust or will. In this situation, the house would be worth a million dollars. So let’s say the dad did have a living trust, a testament, or a will, and he passes away, and the kids decide to sell it, and they sell it for a million dollars. In this case, there may not be any taxes because the basis, or step-up basis, of the house, is now $1 million, not $100,000, because there was a will and a trust, versus there being no will or trust when you just need a transfer deed, as in my previous example. So that’s the advantage of doing things right by doing them through an attorney. However, this is only one method of transferring a title. And of course, the recommended way is through a living trust or a will. Talk to your accountant or your attorney.