Many people consider deeding property to their children, grandchildren, or other family members. Why not? It seems reasonably prudent: Give the kids an investment that will work in their favor when they graduate from college. Start them off on solid financial footing. Teach them to be responsible and self-sufficient. Not to mention, there are occasionally advantages to getting property out of your name, so why not deed a piece of property over to one of your responsible teenage children? Even the best-laid plans can carry legal complications. When the person you’re seeking to add to your title is under 18, several legal and logistical issues can attach. To illustrate, here are three.
Minors cannot convey property.
You can convey property to a minor, but it’s a one-way street: A minor cannot legally sell or mortgage a property, even if it’s in his name, in his own personal capacity. To sell property owned by a minor, a guardian must be appointed to manage and oversee the sale of the property, with the consent of a guardian ad litem (GAL), through a formal legal proceeding. In a sale, the minor’s legal guardian can petition a court to sell the property, and a clerk in the county where the property is located must approve and order the sale. As the North Carolina statute states, the clerk may order a sale, a mortgage, an exchange, or a lease (of more than three years) to be made by the guardian in a way that is “most advantageous to the interest of the ward [the minor].” For example, the court may find that the minor’s estate is insufficient to manage his affairs, like paying debts or taxes, and thus a sale is necessary to gain liquid funds to cover the expenses. Even when and if the property is sold, the minor’s legal guardian is required to hold the proceeds until the minor turns 18. Each year, the guardian will need to file a report with the court proving that he or she still has the money. If any of the money is spent, it must be done for the minor’s benefit. The guardian is legally required to file a report explaining exactly why and how the funds were used. The North Carolina statute states that these procedures do not apply to leases under three years, so a parent or guardian can lease a property owned by a minor without the court’s intervention. But sales and refinances demand a good deal of red tape, and there’s generally no way to accelerate the legal process before a clerk.
You lose control of the property once the minor turns 18.
When your child turns 18, he or she is legally permitted to do anything at all to the property: sell, refinance, lease, renovate, or let it sit vacant if the title is in his or her sole name. So long as it is a legal use, the minor is now the legal owner and does not need the help of a GAL or the approval of the court to dispose of the property. For parents, this may mean you deed a property to your 16-year-old intending him to use it as a rental property. But your child may decide to sell it and use the proceeds to buy a boat or backpack across Europe once he reaches the age of majority. Even if you demand he deed the property back to you, he has no legal obligation to do so, and once he marries, his spouse must also agree to any future sales. From an emotional standpoint, this can often cause tension and discord among families, particularly if the property carries emotional weight, for instance, if it’s been in the family for generations.
Young adults may not be the best custodians of property.
At the risk of painting an entire generation with a broad brush, few kids and young adults (even once they turn 18) are equipped to adequately care for a property on their own. Property ownership carries numerous responsibilities beyond simple cleaning and yard maintenance: There are repairs to consider, taxes to pay, and utilities to handle. Utility companies request proof of ownership and are hesitant to provide service when they see a minor owns the property. Not to mention, think about the tension factor yet again: Will your adult children take care of the property? Will they keep pets? Throw wild parties? Defer maintenance until the place becomes uninhabitable? Is this a stressor you want to take on? This article is not meant to dispense legal or practical advice. It is simply a call to pause before adding your minor children to a title. Ask yourself whether there is a viable alternative. Perhaps you can set up a trust or LLC, for example, that will give you a bit more control over the property. Our transactional attorneys can share more options that might get you to the same goal, with a bit less headache (or heartache).