Whether you want to help your children or reduce the taxable value of your estate, many parents think that transferring ownership of their home to the kids is a good idea. Before you go any further, consider the following scenarios: if you are living in the home, your child could sell the home; if your child gets divorced, the ex spouse could have a claim on the home; or if your child has financial problems, creditors could come after the home.
Your security could be threatened in the blink of an eye. Other reasons that seem like a good idea could be flawed as well. Many people believe that transferring home ownership can preserve wealth or help avoid tax penalties. Actually, the tax consequence is likely to be far less if the home is part of a normal inheritance. If you are looking to downsize, selling the home and sharing the proceeds with the children can be a much better strategy.
Many parents think they will have a better chance to qualify for Medicaid's long term care benefits if they transfer ownership of their home. Medicaid assumes that if an applicant gives away property within five years of applying for Medicaid coverage that the transfer was made to qualify for Medicaid. This will trigger a period of ineligibility. Actually, the house may not have been counted in the value of assets anyway. The five year rule does not apply if the applicant is transferring property to a spouse or a care giving child living in the home.
There are some situations where transferring the ownership can be advantageous. But if you intend to live in the home there are security measures to put in place including establishing a life estate or a personal residence trust. If you are considering a change in the ownership of your home and you want your children to benefit, give us a call and we will provide specific advice for your situation.