Parents often think about transferring their homes to their adult children. As a parent, transferring property to your children is a significant decision with potential benefits and drawbacks. Let’s examine some possible pros and cons of making such a transfer.
Potential Benefits of Transferring Your House Before You Pass Away
- Avoiding Probate: A significant advantage of transferring property before death is circumventing the probate process, which can be lengthy, public, and costly. Transferring your home to children while you are alive can ensure a relatively quick transition of the asset.
- Medicaid Planning: Transferring property may help in Medicaid planning, potentially allowing you to qualify for Medicaid by reducing your countable assets. However, you must proceed with caution when implementing this strategy due to the look-back period Medicaid imposes.
- Peace of Mind: Transferring your home can offer you peace of mind, knowing your house is in the hands of the person you wish, potentially avoiding disputes among your heirs later.
- Immediate Benefit: Seeing your children benefit from owning the property during your lifetime can be rewarding as a parent, a sentiment often described as “gifting with warm hands.”
Drawbacks of Transferring Your House Before You Pass Away
- Loss of Control: Once you transfer your house to your child, you relinquish control over the property. You no longer own the property. This loss of control can be significant, particularly if your circumstances change, if your relationship with your child changes, or if you later need to access the property’s equity.
- Medicaid Look-Back Period: While transferring property can be part of Medicaid planning, it’s essential to consider the look-back period, which could lead to a penalty period of ineligibility for Medicaid.
- Tax Consequences: One of the most significant considerations is the tax impact of transferring property. When you gift your home to your children, they receive your cost basis in the property, which can result in substantial capital gains taxes if they sell the home later. For instance, if you purchased your home decades ago at a much lower price than its current market value, your children could face a hefty tax bill upon selling the property. In contrast, if the property is inherited, it receives a “stepped-up” basis to the market value at the time of your death, potentially saving thousands in taxes.
- Family Dynamics: The decision to transfer property can sometimes lead to tensions or disputes within the family, especially if not all children receive equal consideration in the estate planning process.
- Financial Risks for Parents: If you transfer your primary residence to your children, you might face uncertainties regarding your living arrangements in the future, especially if unexpected needs arise.
Making an Informed Decision
Before deciding to transfer your home to your children, consider the following steps:
- Consult with an Estate Planning Attorney: An experienced attorney can help you navigate the complex legal and tax implications of transferring property and suggest strategies for your situation. Given the pros and cons of this type of transfer, you may want to consider alternatives that offer more protection and flexibility.
- Evaluate Your Long-Term Care Needs: Consider your potential need for Medicaid or other long-term care services and how transferring your home could affect your eligibility.
- Consider Your Children’s Circumstances: Assess whether your children are financially and emotionally ready to manage the property, including potential tax liabilities and maintenance responsibilities.
The Law Offices of Tracy R. Field PLLC assists with New York estate planning and New York Medicaid planning to help you prepare for the future. If you are ready to work with an experienced New York Estate Planning Attorney, our Life, Family, and Legacy Strategy Session is the perfect place to start. Schedule your meeting today.
