It is so easy to add a child as an owner of real estate. Just get a deed online and file it with the Register of Deeds. People think that this is a good thing, but all sorts of unintended bad things can happen.
1. If the pre-existing owner is admitted into a nursing home within five years of the transfer, the conveyance can be used to delay Medicaid eligibility. The gift is without consideration and DHHS doesn’t look kindly on that.
The really bad part of this is that a person’s home is exempt when applying for Medicaid.
2. The child is now an owner and that asset is subject to the claims of the child’s creditors. All sorts of bad things can happen here.
3. The child loses out on the step-up in basis of the real estate. For agricultural and commercial property, this is a big deal. In Nebraska, many people own low basis ag real estate. Losing out on the step-up in basis can mean a big tax bill if, and when, the child sells it.
4. Perhaps the absolute worst case scenario is a break down in relations between parent and child. As a co-owner, the child could force a sale of the real estate via a partition action. Not good!
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