Joint ownership is one of the oldest methods people have used to avoid the probate of their homes or other real estate. When the parents pass away the property automatically transfers to the children without the need to go through probate.
There are drawbacks to the "do it yourself" estate planning approach. For starters, when the children are added as joint owners the property becomes vulnerable to any creditors of those children. Some parents attempt to avoid this by not registering their joint tenancy deeds during their lifetimes. Instead, they direct that such registration take place after their deaths.
These deeds to be filed postmortem are often referred to as "pocket deeds."
As Iron Mountain Daily News points out in an article entitled "Elder law attorney warns of risks of unrecorded deeds," these deeds have risks of their own:
These risks include:
Medicaid Problems –Consult a local elder law attorney for advice on how your state approaches this for Medicaid purposes. If someone other than a parent is the owner, then eligibility may be affected and the home may not be an excluded asset for determining Medicaid eligibility.
Lost Deed – If the deed cannot be found after the parent passes away, then the home will have to go through probate anyway.
Tax Consequences – There can be negative property and capital gains tax consequences with unrecorded deeds.
There are better ways to avoid probate than transferring title to real estate whether right away or through a pocket deed.
Talk to an estate planning attorney about the options.
Reference: Iron Mountain Daily News (Feb. 3, 2016) "Elder law attorney warns of risks of unrecorded deeds"