Don’t be so quick to transfer that house to the kids…
As we age, many of us begin to think about how we can pass on our assets to the next generation. Some people choose to transfer title of their home to their children, either as a gift or as part of their estate planning. While this may seem like a simple and straightforward solution, there are several potential dangers to be aware of.
1. Loss of Control
Transferring the title of your home to your children means that you no longer legally own the property. While you may still live in the house and make decisions about its upkeep, your children are now the legal owners. This can create tension between you and your children if they want to make changes to the property that you do not agree with.
2. Risk of Financial Exploitation
When you transfer the title of your home to your children, you are effectively gifting them a valuable asset. While you may trust your children implicitly, this transfer can leave you vulnerable to financial exploitation. If your children have financial problems down the road, they may be tempted to sell the property or take out a mortgage on it to pay off their debts.
3. Loss of Eligibility for Medicaid
Medicaid is a government-funded program that provides health care coverage to seniors and those with disabilities who have limited income and resources. If you need Medicaid to pay for long-term care, transferring the title of your home to your children can make you ineligible for this program.
When you transfer your home to your children, it is considered a gift for Medicaid purposes. This means that there may be a penalty period during which you are ineligible for Medicaid coverage. Depending on the value of the home, this penalty period could last for years.
4. Loss of Property Tax Benefits
Many states have property tax benefits in place for seniors, such as freezes or reductions on property taxes. These benefits are often tied to your age and income level. If you transfer the title of your home to your children, you may lose these tax benefits.
5. Loss of Stepped-Up Basis
When you transfer title of your home to your children, they inherit your original purchase price as the basis for determining capital gains tax if they decide to sell the property in the future. If the property has appreciated significantly in value since you purchased it, your children could be hit with a large capital gains tax bill when they sell it.
In contrast, if you leave the property to your children as part of your estate, they receive a “stepped-up basis” equal to the value of the property on the date of your death. This means that if they sell the property soon after inheriting it, they will likely owe little or no capital gains tax.
Conclusion:
Transferring the title of your home to your children may seem like a good idea at first, but there are several significant dangers to be aware of. From the loss of control over your property to the loss of property tax benefits and Medicaid eligibility, it is essential to consider all the potential consequences carefully. Consulting with an estate planning attorney can help you make the best decision for your unique circumstances.
If you are involved in a real estate transaction, it is also important to consult with an attorney who specializes in real estate law to ensure that your rights and interests are protected. At AllenYLaw we have years of experience in dealing with real estate transactions and have seen it all. Contact Allen Yusufov today at (732) 874-1479 or allen@allenylaw.comfor expert representation backed by years and thousands of transactions worth of experience.