Are you considering transferring your home to your children? There are any number of reasons it might occur to you to transfer ownership of your home to your children while you are still alive. Perhaps, quite simply, you want them to have it after you die and don’t want to bother with willing it to them. Maybe you’re worried about inheritance taxes. Maybe you want to offload assets so you can be eligible for long-term care covered by Medicaid, without the house leaving the family. But there are numerous risks to take into account if you are considering transferring your home to your children.
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For example, if eligibility for long-term care through Medicaid is the reason you’re looking into this option, please note that transferring your home to your children within five years before applying for Medicaid you will be considered to have done so with the goal of becoming eligible for the program—and this may result in the Medicaid care not being available to you for years to come. Moreover, your primary residence is not counted as an asset for purposes of Medicaid eligibility so long as you, your spouse, or your minor or disabled child is still living there.
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Inheritance taxes should not factor into this decision, because as of the writing of this blog, Virginia has done away with any inheritance tax.
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Capital gains tax, on the other hand, could be a significant factor—and in this case, it works against a transfer while you’re alive. If the child to whom you gift the home sells it anytime afterward, the capital gains will be based upon the difference between the price at which you bought it and the price at which they sell it. If the house goes to them via inheritance, on the other hand, the cost basis is reset to the market value of the home when you die—so the difference in the price for which they sell it would be calculated from that date. It is often the case that a home’s value goes up over time. So the setting of the cost at a later date could result in potentially huge tax savings for your child. (That said, there are ways to set up trusts to contend with this issue.)
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If your child to whom you transfer your home has creditors—whether you are aware of them or not—the home could be used to satisfy their debts. That means it could be seized out from under you, even while you thought you could still live in it.
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And then of course there is the sad scenario in which a parent transfers ownership of their home to their child on the assumption that all will continue to go well between them, and then things break bad. For whatever reason, the relationship goes sour—and the parent winds up evicted from their own home. You may not expect this to happen. But ask yourself: how often do you suppose parents who trustingly transfer their home to their children do expect such a thing?
Let Us Help With Transferring Your Home While Protecting You
If you want to make sure your child inherits your home or you are considering other ways to plan for the future, attend one of Promise Law’s free estate planning workshops. These workshops provide a great foundation of information that everyone needs to be able to make good estate planning decisions. Moreover, if you attend a workshop you also get a complimentary one-on-one consultation with one of our attorneys. Contact us by using our convenient online form or by calling us at (757) 690-2470.
