By Nicole Wipp, Elder Law Attorney | Family & Aging Law Center

This article is for educational purposes only and does not constitute legal or tax advice. For advice specific to your situation, call us today at (248)278-1511.

As an elder law attorney, I spend a lot of time helping Michigan families undo well-intentioned mistakes. And one of the most common — and most costly — mistakes I see is parents adding an adult child to the deed of their home.

Someone — a neighbor, a well-meaning friend, your accountant, maybe even an estate planning attorney — suggested: "Just add your kids to the deed. When you die, it passes right to them. Easy."

And it sounds easy.

I understand wanting to do the thing that sounds easy.  I mean, you want it to go to your kids without hassle, without probate, without delay. Adding them to the deed seems simple, direct, and free. What could go wrong?

Quite a lot, actually. And one of the most expensive consequences is one that almost nobody sees coming until it's too late: the loss of the step-up in basis.

What Is a Step-Up in Basis — and Why Does It Matter?

Let's say you bought your home in 1985 for $80,000. Today, it's worth $380,000. That $300,000 difference is called appreciation—and under federal tax law, it's also a potential capital gains tax liability.

Here's the good news: if your child inherits your home after you pass away, the tax code provides a step-up in basis. That means, for tax purposes, their cost basis in the home is reset to the fair market value at the date of your death — in this example, $380,000. If they turn around and sell the home shortly after inheriting it, they owe little or nothing in capital gains taxes. The appreciation that has built up over your lifetime essentially disappears for tax purposes.

It's one of the most valuable — and most underappreciated — benefits in all of estate planning.

What Happens When You Add Your Child to the Deed Instead?

This is where things go wrong.

When you add your child to your deed during your lifetime, you are making a gift of a portion, or possibly all, of the property. And that gifted portion carries your original purchase price — your $80,000 basis from 1985 — right along with it. It does not receive a step-up at your death.

So instead of inheriting a home with a $380,000 basis, your child may be left holding a partial interest with a basis tied to what you paid for the home decades ago. When they sell, they could owe capital gains taxes on a substantial portion of that appreciation — taxes that, with proper planning, could have been avoided entirely.

Why pay taxes you simply don't need to pay?

The Cost Can Be Staggering

I want to be concrete about this, because I think people underestimate how significant this is.

Federal capital gains tax rates can reach 20% for higher-income taxpayers, and Michigan adds its own layer on top of that. On $150,000 or $200,000 of otherwise avoidable gain, we're talking about tens of thousands of dollars walking out of your family's pocket — not because of bad luck, but because of a deed change that felt like the easy solution.

This is not a hypothetical. I see it happen. And it breaks my heart every time, because it was entirely preventable.

There Are Better Ways

I want to be clear: wanting to protect your home and make things easy for your children is a wonderful goal. The problem isn't the goal — it's the tool. Adding someone to a deed is simply the wrong tool for most families, and the capital gains consequences are just one reason why.

There are planning strategies specifically designed to help your home pass to your loved ones smoothly, outside of probate, while preserving the step-up in basis and protecting your Medicaid eligibility. These include:

• Ladybird Deeds (Enhanced Life Estate Deeds), which allow you to retain full control of your home during your lifetime while directing it to your heirs at death — without making a present gift
• Revocable Living Trusts, which keep you in control and transfer your assets privately and efficiently at death
• Medicaid Asset Protection Trusts, for families who need to think proactively about long-term care costs

The right solution depends on your specific situation — your health, your assets, your family dynamics, and your goals. That's a conversation worth having with a qualified elder law attorney before you sign anything.

Don't Let a Simple Mistake Cost Your Family

At the Family & Aging Law Center, we help Michigan families build estate plans that actually work — plans that protect what you've built without accidentally creating new problems for the people you love most.

If you've already added someone to your deed, or are considering it, please reach out before you do anything else. It's much easier to plan well from the start than to untangle a costly mistake later.

Have questions about your home, your estate plan, or Medicaid planning? We'd love to help. Contact the Family & Aging Law Center at 248-278-1511 to schedule a consultation.