“Should I add a joint owner to my home?”

This is a frequently asked question in our office, but it is rare for us to recommend adding others as joint owners on real estate. Adding a child or other individual as a joint owner to real estate is a big decision and the consequences should be considered carefully. Oftentimes, the downsides outweigh the benefits. However, under some very specific circumstances, adding a joint owner may make sense for some families.

Throughout this article, when using the term joint owner, we mean individuals who own the property as joint tenants and not as tenants-in-common. Joint tenancy means there is a right of survivorship: upon one owner’s death the surviving joint owner will automatically own the entire property. With tenancy-in-common, each owner’s interest passes according to their own estate plan.

There are five cautions to keep in mind when adding a joint owner to real estate:

  1. Irrevocable: You cannot change your mind. Once you add a joint owner, you cannot unilaterally decide to revoke their joint ownership. That new owner would have to voluntarily give up their interest.
  2. Loss of Control: Decisions regarding the property must be made jointly. All owners will have a say in decisions such as whether to sell, mortgage, or improve the property.
  3. Liability Concerns: The property is exposed to the creditors and liabilities of the new joint owner, including lawsuits, divorce, and bankruptcy.
  4. Mortgage and Tax Implications: Depending on the relationship between you and the new joint owner, there may be consequences for an existing mortgage. The surviving joint owner will likely only receive a partial step-up in basis upon your death. This means if the surviving joint owner later sells the property, they will pay more capital gains tax. There also may be a transfer tax due.
  5. MaineCare Transfer: Adding a joint owner is the same as “gifting” the full value of the property for purposes of MaineCare eligibility. That means, if you needed long-term care within five years of adding a joint owner to your home, you would not qualify for the MaineCare long-term care benefit to pay for that care. Instead, a transfer penalty will be imposed and you will have to pay out-of-pocket for your care for a period of time.

Considering these risks, when might someone want to add a joint owner to the home? Typically, this only makes sense in a very specific scenario:

  • You plan to own the property for the rest of your life.
  • You are relatively healthy and there is no reason to think long-term care will be needed for at least five years.
  • There is no mortgage on the property, and you don’t expect to remortgage or take out an equity line in the future.
  • You want to leave your real estate to one beneficiary.
  • Your intended beneficiary is someone who you trust completely and who has no current creditors or liabilities.
  • You are very comfortable with the risks and consequences outlined above.

If all the above are true, adding a joint owner may be a simple and affordable asset protection strategy. It works because jointly owned real estate is exempt from estate recovery – your property will not have to repay the State of Maine upon your death. Keep in mind, this strategy is contingent upon the joint owner surviving you. And, of course, MaineCare rules could always change, rendering this strategy ineffective.

What about adding a joint owner to avoid probate? While it is true that adding a joint owner with a right of survivorship would avoid probate, there are other ways to accomplish this goal. You could create and fund a Revocable Living Trust. You could sign a Transfer-on-Death Deed naming beneficiaries to receive the property after your death. Adding a joint owner for the sole purpose of avoiding probate is not usually the best solution.

Extra Caution If You Are 60 or Older: Everyone should have independent representation and counsel before signing a deed to add a joint owner to property. This article provides general information only. Every situation is unique and there may be other factors to consider. If you are age 60 or older, it is even more important that you have independent counsel when adding a joint owner or the transaction could be considered voidable. To protect yourself and your family, please speak with an attorney before adding a joint owner to your property.