Legal Question in Real Estate Law in California

Well the first thing to do is change your plan. Deeding property to your children while you are alive, rather than through a will or trust is probably the most foolish economic decision the average person can make, especially with all the Bush era estate tax roll backs about to expire. First, under the expired roll backs, you personally would be immediately liable for gift tax on the equity value granted to the child(ren) over $13,000. Next, it would trigger a Prop 13 property tax reassessment on the share you give the child(ren). So your property taxes go up. At least if you fill out the proper forms for an exemption you will probably avoid the documentary transfer taxes, since it is an intergenerational transfer. When the really bad consequences kick in is when the property is sold. If you transfer the property to the child(ren) by trust or will, their capital gains basis becomes the value of the property when you pass away. Only the increased value after that date is subject to capital gains taxes. If you grant it to them while you are alive, the basis remains what YOU paid for the property, and all increased value above that is taxed. Depending on the property and what you paid for it, that can mean literally hundreds of thousands of dollars in wasted money. And as if that were not enough, if giving away the property, or a share in it, leaves you with the value of the assets you own being less than the debts you owe, both you and your child(ren) can be sued for fraudulent transfer and the whole transaction will be reversed. Still thinking about doing it? Well there's one more nasty consequence. If your kids inherit by will or trust distribution, any mortgage holder must allow them to keep making payments as if you were still the owner. If you grant property or a share of it while you are alive, it will almost certainly be a breach of your mortgage agreement and deed of trust and the lender(s) can demand immediate pay-off of thier loans and/or foreclose on the property. Other than those minor issues, it's a dandy idea to put your kids on your property title.