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Home insurance and unexpected consequences of non-resident names on the house deed

There is a connection between your home insurance policy and your deed to the house. Only the primary residents of the house have coverage under the umbrella liability rider of your homeowner's policy. Anyone who is not a legal resident can cost you your home. This is one of those tricky predicaments generally caused by ignorance. As the saying goes, ignorance of the law is no defense. Ignorance here could cost you your home.

Many people trying to skirt the estate laws in their state and avoid probate put their children's names or another family member's name on the deed to the house. The idea is that upon death the home never enters into probate because a living owner still exists. Probate is the proving of a will, or the legal proving of ownership of all real assets prior to disposition of assets in the will. In many states, the probate process ties up all the assets for 10 months to several years. It can be very costly and is often very destructive for the surviving family.

When a person has their name on a deed, they have all or part ownership of that property. There are two major problems with putting a nonresident family members name on a deed. The first is a tax liability. When you add a child to your deed your gifted that child a percentage of the house. Say you and your spouse are alive and you put your son on the house. The house value is $300,000. That year you gave your child a $100,000 gift and he has to account for that on his income taxes. The house can be lost for tax evasion.

Bad reason number two, if he is not a resident, and he is involved in a tort of some kind that requires him to pay, the house is $100,000 of asset that is legally his, and legally available for claim in a suit. Your umbrella liability portion of your home insurance policy covers you, the resident homeowner, but not our son. Your son's car accident where he was underinsured, is now taking payment out of your house. Your grandson's indiscretion that resulted in a civil case for assault may have you taking out a mortgage to pay the bill, because your son owns 1/3rd of your home.

If you have a non-family member already on your deed, consult with your home insurance agent to clarify specifically your risks.

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