A couple sat down with the interviewers and said they wanted their daughter to inherit their rental property. Then came the practical question: so when do we put her name on the deed? Jason Gaudy, an estate planning and probate attorney at Gaudy Law in Upland, California, has a one-word answer to that, and it’s never.
Some of what follows is California-specific: the parent-child property tax exclusion he references is a California rule, tightened further by Proposition 19. The creditor exposure and the control problem are not California-specific at all. They travel.
Why do people do it in the first place?
Almost always to avoid probate. Probate is the court process that retitles assets after someone dies when nothing else is in place, and it is slow, public, and expensive. The logic sounds airtight: put the kid on the deed now, the property passes automatically at death, no court.
Gaudy says he has a big problem with it. Adding a child to title is a lifetime gift of an ownership interest. Lifetime gifts and inheritances are taxed and treated very differently.
His verdict, in his words: “putting your child’s name on the property is one of the worst ideas that I can think of.”
What can it actually cost?
He names four distinct exposures.
The property tax basis. By transferring an interest during life, he says you may or may not have preserved your property tax basis. There is a parent-child exclusion that, handled correctly, may have worked, but a deed prepared without regard to it can waste it. In California this is now a much smaller door than it used to be.
Capital gains taxes. Gaudy says you may have subjected the property to potential capital gains taxes. Here’s the plain-English version of the rule behind that, which is federal and applies everywhere: when someone inherits property at death, its cost basis for tax purposes is generally reset (“stepped up”) to the property’s value on the date of death. A building bought for $200,000 and worth $900,000 passes with a basis near $900,000, and the paper gain of the parent’s lifetime evaporates. A gift made during life generally carries over the parent’s original basis instead. Same building, same child, potentially a very different tax bill on the eventual sale.
Your child’s creditors become your problem. This one Gaudy states flatly: “if your children have creditors, they are now your creditors.” A judgment against your child can reach the property, because your child now owns part of it. Divorce, a business failure, a lawsuit, a bad guarantee. None of those were on the table when the property was solely yours.
Control. He treats this as the practical killer, and he has the story to go with it.
The mother who couldn’t sell her own house
Gaudy describes a family that needed to move mom into a care facility and needed to sell the property to pay for it. She had put all of the kids’ names on the property years earlier. Two of them would not give it back when she needed to sell.
That is the whole problem in one sentence. She had not made a plan; she had handed away the ability to make one. His governing principle, which he repeats across the interview, is that people should keep control of their own assets for as long as they possibly can.
The conversation he refuses to have
There is a version of this that arrives at his office already in motion: one of the children brings a parent in and explains that mom wants to leave the house to them. Gaudy says he gets that all the time. His response is to decline. He tells them he can’t represent both, there’s a conflict of interest, and in some of those meetings his read is that the parent may have dementia. His next question is whether there are other siblings.
He also punctures the assumption underneath a lot of these deeds. Parents often believe they can put one child on title and that child will sell the property and share the proceeds with the others. In his experience, they won’t.
The alternative he actually recommends is unglamorous: a properly funded revocable living trust, which accomplishes the probate avoidance people were chasing without giving up ownership, basis, or control while you’re alive. If you’re wondering whether that applies at your net worth, see why almost everyone needs a revocable living trust.
What this means if you’re planning a 1031 exchange
Title is not a detail in an exchange. A 1031 exchange generally requires the same taxpayer who sold the relinquished property to acquire the replacement property, so an extra name on the deed means an extra owner whose signature, tax situation, and cooperation are now part of your closing. Adding a child before a sale can complicate a transaction that runs on strict 45-day and 180-day deadlines. And because the step-up at death is one of the main reasons long-term owners keep deferring rather than cashing out, a lifetime transfer can undo the exact benefit the exchange strategy was built around. Worth a conversation with your CPA and estate attorney before a deed gets recorded, not after.
Watch: Why Adding Your Child to the Deed Can Backfire with Jason Gaudy, Gaudy Law
Educational only. Not legal, tax, or investment advice. Jason Gaudy is licensed in California; rules vary by state. Consult your own advisors.