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Caring For Generations

A Very Much Not-Now estate Planning Move

by | Feb 7, 2024 | estate and tax planning, Estate Planning, estate planning documents

Putting an adult child’s name on the deed to your home may seem like a good idea. You’re a widower, you have only one heir, and your home represents your one most valuable asset.  If the delays and costs of probate can be avoided, that will make settling your modest estate an easy process, you reason, making changing the deed is a good idea…..

Speaking of reasoning, there are a number of reasons transferring ownership of a home to an adult child (or even adding that child’s name to the deed of your home) may not be such a savvy estate planning move:

  1. Any gift that exceeds a certain value ($18,000 per recipient in 2024) must be reported to the IRS on a gift tax return.
  2. If your child were to face financial challenges in the future, his/her creditors could lay claim to your property.
  3. Any future decision you might want to make concerning the home, including selling it, would no longer be yours to make.
  4. If you need Medicaid coverage to pay for long-term care costs and you transferred your home in the five years prior to applying for Medicaid, you may not be eligible for benefits because you added your child to the deed.
  5. If your child has college-age children, their eligibility for financial aid could be affected by the increase in their parent’s net worth represented by their ownership of your home.
  6. Difficult to imagine? It happens – adult children who’ve been given control decide to sell the home and pocket the proceeds, forcing their parents to move.
  7. Significantly, your child could be exposed to a large capital gains tax bill when, at some point after your death, he decides to sell the home. Here’s why:

When your child’s name is put on the deed to your home while you are still alive, the child inherits your original cost basis. If the child later sells the property, capital gains tax would be due on the difference between that cost basis and the sale proceeds.  In contrast, if your child inherits your property upon your passing, according to current law, the cost basis is “stepped up” to the property’s value as of your date of death.

While avoiding probate (the court process of settling an estate) can be worthwhile in terms of saving time, money, and delay, you do not need to transfer ownership now. As an Indiana resident, you can create a trust or even use a transfer-on-death deed to transfer ownership of assets to your son after your death.

Transferring ownership of your home to an adult child while you are still alive is very much a not-now estate planning move.

– by Kristina Shover, Associate Attorney at Rebecca W. Geyer & Associates