This article about adding family members to property ownership to avoid probate by elder law and estate planning attorney Nicole Wipp at the Family & Aging Law Center is not intended to be legal advice. It is for informational purposes only. For information specific to your situation, contact us today at (248)278-1511.

Why Adding an Adult Child's Name to Your Deed in Michigan Is Usually a Mistake

It is incredibly common for Michigan homeowners to add a child to their deed, whether for a primary residence or a vacation home. The reasons are almost always well-intentioned:

• “I want to avoid probate.”

• “This will make things easier when I pass.”

• “It will protect the house from nursing home costs.”

• “It will help keep my property taxes low.”

If you are concerned about any of these issues, estate planning can provide solutions and peace of mind.

Unfortunately, what seems like a simple fix often creates far bigger problems than it solves.

The Major Issues at a Glance

Before we dive into the details, here are the biggest risks of adding a child to your deed in Michigan:

• ⚠️ You are making a completed gift of real estate.

• ⚠️ You may trigger Medicaid transfer penalties if care is needed within five years.

• ⚠️ Your child may lose a full step-up in basis, increasing future capital gains taxes.

• ⚠️ Your home becomes vulnerable to your child’s creditors, divorce, or lawsuits.

• ⚠️ You lose full control — you cannot sell or refinance without your child’s consent.

• ⚠️ You may create complications with your Principal Residence Exemption (PRE).

• ⚠️ The “probate avoidance” benefit is often outweighed by the financial and legal risks.

Let’s break this down.

1. Estate Planning Problem: “I’m Doing This to Avoid Probate.”

Avoiding probate is the most common reason parents add a child to their deed. And yes — if your child is already on title as a joint owner with rights of survivorship, the house will typically pass automatically at death.

But here’s the problem:

Probate in Michigan is often simpler and less expensive than people assume—especially if proper planning is in place. Meanwhile, adding a child to a deed creates:

• Immediate ownership changes

• Immediate gifting consequences

• Immediate Medicaid exposure

• Immediate risk to the home from your child’s financial life

In other words, you are solving a future probate issue by creating multiple present-day legal risks.

There are better probate-avoidance tools in Michigan (which we’ll discuss later) that do not require giving away ownership during your lifetime.

2. Tax Implications: Principal Residence Exemption (PRE)

The Michigan Department of Treasury oversees Michigan’s Principal Residence Exemption (PRE).

Michigan’s PRE saves homeowners up to 18 mills in school operating taxes. To qualify:

• You must own the home, and

• You must occupy it as your principal residence.

When you add a child to the deed, you are legally transferring ownership.

Even if you continue living in the home:

• The assessor may review the PRE.

• If your child does not live in the home as their principal residence, complications can arise.

• Paperwork must be handled properly to avoid losing the exemption.

If mishandled, this can result in:

• Loss of the exemption

• Back taxes

• Interest and penalties

While PRE is sometimes preserved with proper structuring, it is not automatic, and mistakes are costly.

3. Estate Taxes: You Are Making a Taxable Gift

When you add a child to your deed, you are giving them an interest in your home.

That is legally a gift of real estate.

If the value of the gifted portion exceeds the federal annual exclusion amount (which changes periodically under IRS rules), you are required to file a federal gift tax return (Form 709).

You likely will not owe immediate tax, but:

• The gift reduces your lifetime federal estate and gift tax exemption.

• It creates record-keeping requirements.

• It permanently alters tax consequences.

Many families do this without ever filing the required gift tax return, which creates problems later.

4. Capital Gains: The Lost Step-Up in Basis

This is one of the most expensive hidden consequences.

If your child inherits your home after you pass away, they typically receive a full step-up in basis to the home’s fair market value at your date of death.

That means little or no capital gains tax if they sell shortly after inheriting.

But if you add them to the deed during your lifetime:

• The portion you gifted keeps your original purchase price basis.

• That portion does not receive a step-up at your death.

If your home has significantly appreciated over the decades, your child could face substantial capital gains taxes that would have been completely avoided with proper planning. Why pay taxes you don't need to?

5. Medicaid and the Five-Year Look-Back When Nursing Home Care Is Needed

For long-term care Medicaid in Michigan, the state applies a five-year look-back period.

If you transfer assets for less than fair market value within five years of applying for Medicaid:

• A penalty period is imposed.

• Medicaid will refuse to pay for your care for a calculated period of time.

Adding a child to your deed is considered a divestment (gift) of property.

If you need nursing home care within five years:

• The gifted portion of the home counts.

• A penalty period is calculated.

• Your family may have to privately pay for care during that penalty period.

This is one of the most common and devastating planning mistakes families make.

Yes, there is a limited “caregiver child exception,” but it has strict requirements and must be structured correctly. Most informal deed additions do not meet those standards.

6. Your Child’s Problems Become Your Problems

Once your child is on title, they are a legal owner.

That means:

• If they are sued, their ownership interest may be exposed.

• If they divorce, their spouse may claim an interest.

• If they file for bankruptcy, the home could become entangled in proceedings.

• If they die before you, their share may pass according to their estate plan — not yours.

Parents are often shocked to learn they cannot remove a child from title without that child’s full cooperation.

You have permanently given away part of your house.

7. You Lose Control

Adding a child means:

• You cannot sell without their signature.

• You cannot refinance without their signature.

• You cannot mortgage the property independently.

Even in healthy families, this creates complications.

8. Better Probate-Avoidance Alternatives in Michigan

If the goal is avoiding probate, Michigan offers safer tools:

Lady Bird (Enhanced Life Estate) Deeds

Michigan recognizes enhanced life estate deeds, commonly called Lady Bird deeds. These allow you to:

• Retain full control during your lifetime

• Sell or mortgage without beneficiary consent

• Avoid probate

• Avoid triggering Medicaid transfer penalties during life

Unlike adding a child outright, no present gift is made.

Revocable Living Trusts

A properly drafted trust:

• Avoids probate

• Preserves tax advantages

• Maintains control

• Avoids gifting during life

Proper Medicaid Planning

If nursing home protection is the concern, proactive Medicaid planning, done early, is far more effective than informal deed transfers.

The Bottom Line: Contact A Qualified Elder Law And Estate Planning Attorney

Adding a child to your deed in Michigan feels simple.

But it:

• Creates a present gift,

• Risks Medicaid penalties,

• Potentially increases capital gains taxes,

• Exposes your home to your child’s creditors,

• Complicates property tax exemption issues,

• And reduces your control over your own home.

And all of that risk is usually taken just to avoid probate — a process that can often be handled far more safely with proper planning tools.

Before signing a quit-claim deed, it is critical to speak with an experienced Michigan elder law and estate planning attorney. What looks like an easy solution can become one of the most expensive legal mistakes a family makes.