Transferring your home to your children while you’re alive may avoid probate. However, gifting a home also can mean a rather large and unnecessary tax bill. Beck & Lenox Estate Planning & Elder Law also cautions that it may place your house at risk if your children get sued or file for bankruptcy.
You could also be making a mistake if you hope it will help keep the house from being consumed by nursing home bills.
There are better ways to transfer a house to your children, as well as a little-known potential fix that may help even if the giver has since died, says Considerable’s recent article entitled “Should you transfer your house to your adult kids?”
If a parent signs a quitclaim to give her son the house and then dies, it can potentially mean a tax bill of thousands of dollars for the son.
Families who see this error in time can undo the damage by transferring the house back to the parent.
People will also transfer a home to try to qualify for Medicaid, but any gifts or transfers made within five years of applying for Medicaid can result in a penalty period when seniors are disqualified from receiving benefits.
In addition, transferring your home to another person can expose you to their financial problems because their creditors could file liens on your home and, depending on state law, take some or most of its value. If the child divorces, the house could become an asset that must be divided as part of the marital estate.
Section 2036 of the Internal Revenue Code says that if the parent were to retain a “life interest” in the property, which includes the right to continue living there, the home would remain in her estate rather than be considered a completed gift. However, there are rules for what constitutes a life interest, including the power to determine what happens to the property and liability for its bills.
There are other ways to avoid probate. Many states and DC permit “transfer on death” deeds that let homeowners transfer their homes at death without probate.
Another option is a living trust, which can ensure that all assets avoid probate.
Many states also have simplified probate procedures for smaller estates.
Reach out to Beck & Lenox Estate Planning & Elder Law today and let us help you with a plan that makes sense for you and your family.
Reference: Considerable (Sep. 18) “Should you transfer your house to your adult kids?”