Real estate attorneys are often asked to prepare a deed conveying property from a parent to their child or children or even to add their children onto the deed with the parent. There are several reasons why someone would want to do this – some want to get the property out of their name for tax and estate planning purposes, some want to give their children an advance on their inheritance and some want to simply make sure their children are taken care of should something happen to them. In most cases, conveyances for these reasons are fine and are usually pretty simple. However, things can get complicated if the children are not yet of legal age. If the children are still minors, the conveyance can still be done, but there are three things that should be considered before the deed is signed and recorded.
First, while real property can be conveyed directly to a minor, property owned by a minor cannot be sold, mortgage or otherwise encumbered without the appointment of a guardian through the Clerk of Court’s office in the county where the property is located. This means that if you need to sell or refinance the property, someone will have to be appointed by the Clerk of Court as guardian for the estate of the minor, even if a parent, in order to act on the minor’s behalf to sell or mortgage. Even if it is a parent, they have to be appointed guardian of the minor child’s estate, that involves a court process, and will likely mean attorney’s fees and court costs will be incurred. Additionally, if the property is sold, the proceeds will be held by the guardian for the minor’s benefit until he or she turns 18 and each year the guardian has to report to the Clerk of Court showing they still hold the money. If any of the money is used, it has to be done for the benefit of the minor and you have to have specific court approval to spend it.
Second, once the minor turns 18, they are under no obligation to follow your instructions with regard to the property. For example, you may deed an investment property to your child with the intention that they have income from the rentals for years to come. When they turn 18, they may want to sell it and take the proceeds to use for their own purposes. They are under no obligation to follow your intentions. In the same respect, when they are not following your wishes, you may request that they deed the property back to you. Even though you may have given the property to them, they do not have to honor your request to deed it back to you. They can sell their interest without your permission and under their own terms after they turn 18.
Third, and finally, there are practicalities of living on or managing property owned by a minor. Minors usually are not in a position to care for the property on their own. They will likely be unable to maintain the property without assistance and will need an adult to help with routine repairs, payment of taxes, and general upkeep. Consider something as simple as having utilities turned on. Utility companies are more commonly requiring proof of ownership and conducting credit reports to start services, so it may be difficult for parents or other adults to set up utilities at a property owned by a minor child. You would have to have a court order through the estate of the minor child to have utilities put in their name.
It is important to remember that there are alternatives to deeding property to a minor available. These include trusts and custodianships, both may allow you to retain some control over the property. Therefore, before deeding Junior the property to get it out of your name, you should contact an attorney to discuss your options.
Published by Emily Price on December 1, 2016