Why Property Transfers in Estate Planning Are a Legal Minefield

Property transfers seem simple; until they’re not. In fact, two of the most common mistakes I see in estate planning involve well-meaning property transfers that create long-term legal, financial, and emotional headaches.

Let’s dive into each of the two mistakes, and explore the hidden traps beneath what seem like “smart” decisions.

Mistake No. 1: Misunderstanding How Ownership Interests Actually Work

This first mistake is about not understanding the form of ownership of property. In other words, how a property is legally held between people. The casual assumption that “adding someone to the deed” equals “solved” is often wrong and sometimes catastrophic.

Key concepts to understand:

• Joint Tenancy with Rights of Survivorship (JTWROS): Each owner has an equal interest. When one dies, their interest automatically transfers to the surviving owner(s), bypassing probate. Sounds great. Until there's conflict. What if one owner wants to sell? Or borrows against the property? All owners must agree. This can paralyze your ability to control your asset.

  
  

• Tenancy in Common: Here, co-owners can own unequal shares, and their interest does pass through their estate (and through probate) not to the surviving co-owner. This can be helpful for legacy planning, but creates exposure to the other owner's creditors, probate, and potential disputes.

  
  

• Tenants by the Entirety: Reserved for married couples in some states (like NY and NJ). It protects the property from individual creditors, but only works if the marriage remains intact. Divorce instantly dissolves this protection and converts the interest to tenancy in common.

  
  

• Sole Ownership + Transfer on Death Deeds: Available in some states. These allow for a cleaner transfer upon death but can’t be used as a substitute for planning around incapacity, tax consequences, or long-term care.

  
  

The bottom line is this: Ownership structure determines control, tax liability, asset protection, and inheritance. Making changes without understanding these mechanics is like rewiring a house without knowing what’s behind the walls.

Real-World Fallout of Mistake No. 1

We’ve seen families ripped apart because one sibling was “added to the deed” without a formal agreement. Maybe they contributed money, maybe not. When the original owner passes away, the sibling inherits the full property, and the rest of the family is left out, often contrary to the deceased’s intent.

Other times, clients accidentally disinherit someone. They assume the will controls everything. It doesn’t, ownership does. If you own property as JTWROS, your will is irrelevant. The survivor gets it, period.

Mistake No. 2: Transferring the Home to Children to "Avoid Nursing Home Costs"

This one is especially dangerous because it comes from a place of fear. People want to protect their homes from being “taken” if they need Medicaid. So they transfer the deed to their kids. Seems like a proactive move—but it’s not. It’s reckless.

Let’s break down why:

1. Medicaid Lookback Penalty

Any transfer for less than fair market value within 5 years of applying for Medicaid triggers a penalty period where the applicant is ineligible for coverage. This “lookback” rule is strictly enforced. And the value of a home can create years of disqualification.

Transferring the house now doesn’t guarantee you’ll “get around” the rules. It often does the opposite, locking you out when you need help most.

2. Loss of Control

Once the property is in your child’s name, it’s legally not yours anymore. That means:

• They can sell it.

• They can rent it.

• Their creditors can go after it.

• If they get divorced, their spouse might try to claim a share.

So, when this happens, it is often no longer a safety net, but a liability.

3. Tax Consequences

When a child inherits property upon death, they typically receive a “step-up in basis,” meaning capital gains are wiped out based on the date-of-death value. But if you gift the home during life, the kids inherit your basis. So if you bought the house for $50,000 in 1980 and gift it now when it’s worth $500,000, your child could owe tax on $450,000 in gains when they sell. That’s tens of thousands in unnecessary tax.

4. Probate Isn’t Always the Enemy

A lot of people do this to “avoid probate.” But in many cases, a properly structured estate plan can handle the home more cleanly, without creating Medicaid or tax exposure. A revocable living trust, for example, can keep the home out of probate while maintaining your control and protecting your children. And for asset protection, an irrevocable trust, structured properly with the right timing, can offer Medicaid protection without giving away the farm.

How to Do It Right

These are complex issues with big consequences. There is no one-size-fits-all answer, but there is a right process:

1. Get clear on your goals. Is the priority probate avoidance, asset protection, minimizing taxes, or ensuring control?

   
   

2. Understand the consequences. Know the rules in your state. Medicaid eligibility and transfer tax rules are nuanced and unforgiving.

   
   

3. Use the right tools. Trusts, powers of attorney, and clear title documents drafted by professionals are worth every penny.

   
   

4. Don’t DIY your legacy. What seems like a shortcut today often becomes a lawsuit tomorrow. Talk to someone who actually deals with the aftermath of “bad planning.”

   
   

Final Thought

Property transfers are not clerical actions but are strategic decisions. The wrong move now can blow up your estate later. You don’t have to be an expert in survivorship clauses or basis calculations, but your estate planning attorney does.

At Mattiace Tetro, we’ve seen these scenarios play out, and helped clients fix or avoid them entirely. If you’re unsure how your property is titled or whether your current plan exposes your family to risk, let’s talk, Click here to schedule a 15-minute call to learn more and to start our planning process today.  We’ll help you make decisions that actually protect your legacy, not just look like they do.