Minneapolis Estate Planning and Probate Lawyer Warns Against Transferring Your Home to Kids
Most people know that probate should be avoided if at all possible. It is an expensive, time-consuming process that exposes your family’s private matters to the public and allows for easy challenges by others. It sounds simple enough to just give your property to your children while you are still alive so that it's not subject to probate upon your death.
This strategy may offer some potential benefits, but those benefits are far outweighed by the risks. With many other probate-avoidance tools available, such as living trusts, it makes sense to review the risks and benefits of transferring title to your property with a qualified estate planning attorney.
Potential Advantages:
- Property titled in the names of your heirs, or with your heirs as joint tenants, is not subject to probate upon your death.
- If you do not need nursing home care for the first 60 months after the transfer, but later do need such care, the property in question will not be considered for Medicaid (Medical Assistance in Minnesota) eligibility purposes.
- If you are named on the property’s title at the time of your death, creditors cannot make a claim against the property to satisfy the debt.
- Your heirs may agree to pay a portion, or all, of the property’s expenses, including taxes, insurance and maintenance.
Potential Disadvantages:
- It may jeopardize your ability to obtain nursing home care. If you need such care within 60 months of transferring the property, you can be penalized for the gift and may not be eligible for Medical Assistance for a period of months or years, or will have to find another source to cover the expenses.
- You lose sole control over your property. Once you are no longer the legal owner, you must get approval from your children in order to sell or refinance the property.
- If your child files for bankruptcy or gets divorced, your child’s creditors or former spouse can obtain a legal ownership interest in the property.
- If you outlive your child, the property may be transferred to your child’s heirs.
- Potential negative tax consequences: If property is transferred to your child and is later sold, capital gains tax may be due, as your child will not be able to take advantage of the IRS’s primary residence exclusion. You may also lose property tax exemptions. Finally, when the child ultimately sells the property, he or she may pay a higher capital gains tax than if the property was inherited, since inherited property enjoys a stepped-up tax basis as of the date of death.
Transferring ownership of your property to your children while you are still alive may be appropriate for your situation, however, it comes with significant risks. I generally don't recommend this strategy. If your goal is to avoid probate, maximize tax benefits, and provide for the seamless transfer of your property upon your death, a living trust is likely a far better option.