Disclaimer: We are not lawyers; this should not be taken as legal advice.
When thinking about your estate plan, you might think putting your child’s name on the title of your home will solve a potentially difficult situation. Unfortunately, this could cause a few problems for both you and your child.
- Gift Tax Return: When giving your child more than $15,000 worth of property, the giver (you) will have to file a gift tax return.
- No Gain Exclusion: The tax laws allow a tax payer to exclude up to $250,000 of the gain on the sale of their main residence (this goes up to $500,000 for a married couple). But, this only applies if both of you own and occupy this property for at least two out of the last five years. If your child does not live in the house for those years, they will be responsible for their share of the home’s capital gain.
- Equity subject to debts of the child: Property is subject to the debts of its owners. If the child owns the home or is a partial owner, a creditor may file a lien on the property for any of the child’s debts. Although your child may have excellent credit and good fiscal responsibility, your home could be lost if there is an accident or a lawsuit.
- You are now a renter: If you give 100% of the property to a child, you are now at the mercy of the child. If the child decides to sell the property, you must move out. There is no guarantee that the child will continue to care for you.
- Medicaid problems: Under some circumstances, the gift of the home to the child could be considered a gift for Medicaid purposes. If you give the home to the child and the child subsequently sells it, you could be ineligible for Medicaid benefits in the event of a long-term health crisis.
Setting up a living trust may help make sure that the child easily gets the home at the parent’s death.
If you are considering giving your home to your child, contact us so we can discuss the alternatives.