Some parents want to give their children their inheritance so they can see them enjoy it. However, there can be some unintended consequences.
A story in the Yuma Sun says make sure to be informed of the risks and benefits of gifting property, such as a house, land or stock.
The article uses the example of a person who has two properties. You raised your kids in Washington State but started coming to Arizona to escape the winters. Now, Arizona is your permanent home. You are considering giving the home your child grew up in to him.
If you do so, he gets your tax basis, meaning if the house was sold, he may have to pay taxes on any gain over what you paid for it. It would also be subject to his creditors. Also, if you wanted to move back in, he might be okay with that, but his creditors may not be.
If you had placed the house in the proper trust your son could have the irrevocable right to live there and you could also reserve the right to stay there until your death.
Your son’s tax basis would be the fair market value of the house as of your death, minimizing taxes.
The trust would also protect the house against lawsuits, bankruptcy or divorce.
If you have questions about estate planning, feel free to contact us for a consultation at (626) 696-3145.
