You might have heard that one key way to avoid probate is to give your house to your adult children by passing on the house deed or giving them outright. This might seem like the smart or even easy thing to do, but it rarely is from an estate planning perspective. While transferring your house to your children while you are still alive could avoid probate. Gifting a home can also lead to significant tax bills and also put your home at risk if your children file for bankruptcy or get sued. You also could be making a significant mistake if your house was your primary asset that might have been used to help with nursing home bills.
You can’t always count on your children to carry through the individual wishes that you have for the home. If you pass on a home to your children and they receive it after you pass away, they will receive something that is known as a step-up in tax basis. This means that the appreciation that occurred over the time that you owned that property is not taxed.
However, families who make this mistake of signing a quitclaim deed to give their child a house anyways and passing away afterward could lead to a major tax bill. Other reasons not to gift your house include attempting to do so to qualify for Medicaid sooner rather than later.
Transfers or gifts made within 5 years of applying for Medicaid could lead to a penalty period and transferring your home to another person can expose you to their financial issues. Schedule a consultation with an estate planning attorney today to discuss what can and perhaps should happen to your home and other real estate property.
Our California estate planning law office is here to help you answer questions and figure out your next steps. If you need assistance, set up a meeting with us today.