Tip: Gifting your home and other real property to your children can create several problems that you should be aware of.
I frequently have clients who want to gift their home, recreational property, farm ground or other real property to their children. I always try to understand why they want to gift their property and review with them if there is a better way to accomplish their objective. I then explain to them that gifting property can create several problems. Here is a list of things you would want to consider if you are contemplating gifting your home or other real property to you children:
- As of 2022 under IRS rules, if you gift property with a value of over $16,000, you are required to file a gift tax return.
- If you gift your home to you children, but you continue to live in your home, you will lose the homeowner’s exemption on your home and your property taxes will increase dramatically. You can, however, deed your home to your children and retain a life estate. By retaining a life estate, you will continue to receive the homeowner’s exemption, and you can stay in your home until you pass away, and then it goes to your children.
- If you gift property while you are alive that has appreciated since you bought it, your children will lose the step-up in basis that is available to them if you had waited and given the property to them at your death. This could result in your children paying capital gains tax on the proceeds if they sell the property.
- If you need to apply to Medicaid to help pay for your care, you will have a period of ineligibility for the Medicaid Program.
- And perhaps the most obvious reason to not gift your home to your children is that once you have deeded your home or property to them, it is no longer yours. Consider what would happen to your property if you have given it to a child and they take out bankruptcy, get a divorce, or die and the property is passed down to their children.
Persons who are gifting their home to their children to simplify their lives, often find out that they have complicated things instead. If you are contemplating gifting your property to your children, be careful and talk with an attorney who can help you understand all the ramifications of making a gift.
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Tom Packer is an Elder Law Attorney serving all Southeast Idaho. As part of his law practice, Tom offers Life Care Planning to deal with the challenges created by long-term illness, disability and incapacity. If you have a question about a Senior’s legal, financial or healthcare needs, please call us.