It may seem like a great idea: Parents, either because they want to help their kids out, or to reduce the taxable value of their estate, decide to transfer ownership of their home to their kids. Well, it may seem like a great idea. But it often isn't.
Giving the family home to your heirs early? Take great care! This is too important a gift to get wrong, and it’s too easy to do just that. This challenge was the subject of recent article in The Wall Street Journal titled the “Dangers of Giving Your Home to Your Children.”
The family home is often the most important gift you could ever give to an adult child or your adult children. It is meaningful simply by right of being the family home and its place in the family history. When given to a young couple it is also a gift of the future, and a very practical one if you don’t need the space anymore or just wish to downsize.
Nevertheless, houses are as complex as they are valuable when considered as assets and potential tax burdens. Giving the house away early means moving a taxable asset around, and doing so at different times and in different ways will bring different tax burdens. These issues include weighing the consequences of a lifetime gift versus as a testamentary bequest. In the end, you need to fit the house into your overall plan, and carefully at that.
Then there is even more to the financial side and the darker side of liability. A house as an asset is a magnet for creditors, divorce proceedings, and all manners of scaly legal problems that make claim or foreclose upon the house under the name of a younger, less financially stable, adult child. Gifting your house to your children so they can live in forever might end up risking it to their creditors. Worse, if you intend to stay living there and you are gifting the house as a means of avoiding healthcare spend-down then gifting the house outright places you at risk of being put out of your own home.
What about control? Not all family problems work themselves out, after all. It is now up to the kids to keep or sell the house, even against your wishes and, again, even to evict you right out onto the curb if you intend to still live there.
So, do appreciate the house and the gift of it to your loved ones. At the same time, however, also appreciate it as a difficult transition fraught with potential issues to guard against. Once you appreciate the issues you can appreciate the solutions, and depending upon the house, your heirs, and your own needs there are many powerful solutions at your disposal.
You can learn more about this topic as well as other strategies on our website under the tab entitled: elder law planning in Virginia. Be sure you also sign up for our complimentary e-newsletter so that you may be informed of all the latest issues that could affect you, your loved ones and your estate planning.
Reference: The Wall Street Journal (April 13, 2014) “Dangers of Giving Your Home to Your Children”