To avoid Medicaid claims or probate, you may consider gifting your home to an adult child or adding your child to your home’s deed. However, both options could lead to major legal and tax problems. Below, you’ll find the detailed answer to “Should I give my home to my child or add his or her name to the deed?”
The Downsides of Gifting Your Home to Your Child or Adding Your Child to the Deed
When you gift your home to your adult child, you relinquish any ownership interest in the house. Legally, you can no longer make decisions about the property or even live there without your child’s permission. Your child’s ex-spouse could go after the house in a property division feud, and their creditors could make claims on the property.
If you add your child to the deed, they become a co-owner. You’ll even need their authorization to sell or refinance the house. Adding your child to the deed could also implicate your house if the child divorces or files for bankruptcy.
Make Sure You Don’t Lose the Stepped-up Basis Tax Break
The answer to “Should I give my home to my child or add his or her name to the deed?” also has significant tax implications.
Suppose you bought your house 30 years ago, when it was worth $200,000. Today, it’s worth $500,000. The difference of $300,000 is liable to capital gains tax if you sell the house.
When your children inherit the property, they get an automatic stepped-up basis to what the house was worth at the time of your death. In other words, they can sell it for $500,000 and pay zero capital gains tax. But if you add a child to the deed or gift them the property during your lifetime, your children lose this important tax break and will have to pay capital gains tax.
Other Options for Transferring Your Real Estate
A knowledgeable estate planning lawyer can suggest other, more secure and cost-effective options for transferring property to your children than gifting a house or adding a child to a deed. Two of these are:
- A will. A will won’t allow your estate to avoid probate, but the probate process can be straightforward if you engage an experienced estate planning lawyer.
- A trust. A trust can bypass probate and transfer real estate directly to your beneficiaries. An irrevocable trust can also protect your home from Medicaid and creditors.
The Law Office of Ralph W. Powers, Jr., P.C. – Secure Estate Planning Solutions in Upper Marlboro, MD
Are you asking yourself, “Should I give my home to my child or add his or her name to the deed?”
Discuss your estate plan with the experienced legal team at the Law Office of Ralph W. Powers, Jr., P.C., before gifting your property or adding a joint owner. A skilled estate planning attorney can suggest efficient property transfer solutions that protect your estate from legal and tax implications.
Call (301) 627-1000 or schedule an appointment online to consult an estate planning lawyer in Upper Marlboro, MD.