If your home is your primary asset, you may believe you can accomplish your estate planning goals by transferring ownership of your house to your child while you are still alive. Although this can keep your house from going through the probate process, it can also create significant issues such as:
- Transferring your house while you are alive means that you will lose any property discounts that you are eligible for (many states offer discounts to persons over 65) which will result in an increase in your property taxes. Some states also charge a fee for every transfer. Not understanding this can be very costly to you. Depending on your financial situation, this could get you into tax trouble.
- If your child has had financial struggles, transferring your house to him or her could put it into jeopardy. Once title to the home is in your child’s name, it becomes vulnerable to your child’s creditors and other legal troubles. What if your child files bankruptcy? Your house is their asset!
- Although you may have a strong relationship with your child, nobody knows the future. If you were to have a falling out, your child will not be legally obligated to allow you to continue to live in your home without a lawsuit.
- If you have more than one child, transferring title of your home to only one child can cause sibling rivalry and disputes. However, putting all of your children’s names on the title to your home can also cause fighting if they can’t agree on what to do with it. Having numerous names on the title can also make the home vulnerable to all of their creditors.
The transfer of title to your children is subject to the federal gift tax. While it may be exempt from payment of a tax (depending on the size of your estate), it still requires filing of a gift tax return.
You could lose the step-up in basis under the tax laws which means your children pay income tax on the future sale of your home.
Your creditors can still set aside the transfer to your children. The Fraudulent Conveyance Act protects creditors where you transfer assets without adequate consideration.
It is important to remember that even if you transfer your home out of your name, there are other assets in your estate that may still make a probate action necessary. If you hope to avoid probate, lower tax liability, and save you and your family money, contact us for an appointment. Creating an effective estate plan does not have to be expensive – let us help! To be perfectly honest, we almost never recommend transfer of a house to your children as a strategy to avoid probate or taxes. There are better and more effective tools.
The Astill Law Office has provided high quality legal services for over 30 years. We specialize in wills, trusts, estate planning, and asset protection. If you have any questions about creating a Trust, Will, or estate planning in general, contact The Astill Law Office at 801-438-8698.