Should I Give My Home to My Children?
Should I give my home to my children? Many seniors do just that. Typically, I am asked this question by a client at least twice a week. But it may turn out to be a big mistake. Giving your residence property to your children during your lifetime may not be the best planning option for you. Don’t do it without getting expert legal advice first.
People have many reasons for putting their homes in their children’s names. Among them is the desire to save on the taxes and legal costs that arise when the home is transferred to their heirs at death. And for many seniors an even more important goal is to avoid losing the home if they ever need nursing home care.
The transfer of a home from a parent to a child may in fact result in a savings on death taxes, assuming the parent predeceases the child. Unfortunately, these savings may be outweighed by several negative consequences that are often overlooked.
If you are thinking about making a lifetime transfer of your home to your child or children, there are many things to consider first. Consider the following issues before you take this drastic step:
- The Capital Gains Tax Trap: If you give away your home, and it has gone up in value, your child may have to pay a capital gains tax when the home is someday sold. The capital gains tax would most likely have been avoided if you owned and sold the home yourself during your lifetime or if the home was sold after your death.
- Loss of Control: If you give away your home, you may lose control over it. You may have no say in whether it is sold or mortgaged. You could be charged rent. Even if you trust your child, your child may divorce or die and your home may pass to a son or daughter-in -law or grandchildren.
- Creditors: If you give away your home, you may subject it to the creditors of your child.
- Public Benefits. Giving away your home may cause you to lose certain public benefits you receive like SSI and Medical Assistance (Medicaid).
- Gift Tax Return: If you give your home to your child, you may need to file a federal gift tax return. (Whether you will need to pay gift tax depends on the value of your home and the value of other assets you have given away in the past).
- Property Tax or VA benefit: If you give away your home, you may no longer qualify for annual property tax rebate programs in NJ or PA or for a VA reduction in your real estate taxes.
- Creating Ineligibility for Medical Assistance Benefits for Nursing Home Care: Although may people give away their home to avoid losing it if they ever go into a nursing home, the transfer can actually deny access to quality care due to the Medicaid five-year look back period.
Parents and children are usually unaware of the potential consequences when merely transferring the home. There are many planning tools and options available to help families achieve their objectives. Every situation is different. You should never give your home away without understanding all of your options and fully considering the advantages and disadvantages of such a transaction.