TRANSFERRING YOUR HOME TO YOUR CHILDREN, By Hillary Snyder
When parents become of a certain age, they start thinking about transferring their home into the names of their children for various reasons. Some want to avoid probate and taxes, and some want to protect it from being taken should they enter a nursing home and need medical assistance.
In either case there is some careful consideration that needs to take place. It is important to understand that when a parent deeds their real estate to their children, their children are now the owners of the property and their problems may become your problems.
For example, should a child lose their job and have creditors looking to collect, your house can be taken by their creditors. Even if they file for bankruptcy, your house may not be protected, because they can only unusually save their primary residence. This same problem might occur if they are involved in a lawsuit for any reason, including a car accident in which they were under insured.
Another factor to consider is the tax consequences. Although, if you transfer the real estate and live a year past the date of transfer, there is no inheritance tax, unless your child dies first. In which case, you have to pay inheritance tax from inheriting it back from your child. This may be rare, but I have seen it happen.
Capital gains tax may also be of concern when transferring the property. If your children inherit the property, they pay inheritance tax of 4.5%. By paying the tax, their basis in the property is the value of the property on your date of death. If the property is transferred for little or no consideration, their value is the carry over basis, which is essentially what you paid for the house, adjusted for improvements. When your child goes to sell your house, they may have to pay capital gains tax.
Your biggest concern, however, may be making sure that the home gets passed along to the next generation and is not taken should you enter a nursing home. A useful planning tool for you may be an Irrevocable Income Only Trust. The sooner this tool is utilized the better.
As long as you do not need to qualify for medical assistance in the next five years, or you have the money to private pay for a period of time, your house will be protected, passed along to the next generation as you wish, and also have some tax benefits.
Another useful tool may be a Caregiver Agreement. If a child is living with you and taking care of you, and you wish to leave your home to such child for their help, it is important to have an attorney draft a Caregivers Agreement, to make sure your wishes are carried out, and it can also be used to save the real estate from being taken to help repay a Medicaid claim.
In all cases, simply transferring your real estate to your children may render you ineligible for medical assistance, depending on when it is transferred.
I know this is a lot of information, and there is a lot more information to be given depending on your individual situation. Therefore it is important that you consult with an estate and elder law attorney prior to making any real estate transfers.
I am always happy to give a free educational sessions / free consultations, so please do not hesitate to contact me.
