When Should You Transfer Ownership of Your Home?

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KS and MO Attorney Kyle E Krull

Written by Kyle Krull

Attorney & Counsellor at Law Kyle Krull is president of the Law Offices of Kyle E. Krull, P.A., an Estate Planning Law Firm located in Overland Park, KS. Estate Planning Attorney Kyle Krull has provided continuing education instruction to attorneys, accountants, and financial professionals at local, state, and national programs.

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POSTED ON: June 1, 2020

Consider carefully when you transfer ownership of your home. You are a homeowner. This house is likely one of your largest assets. For this reason, it is a significant portion of your estate. According to a recent MarketWatch article titled “Why you shouldn’t give your house to your adult children,” this means you should be […]

Consider carefully when you transfer ownership of your home.

You are a homeowner.

This house is likely one of your largest assets.

For this reason, it is a significant portion of your estate.

According to a recent MarketWatch article titled “Why you shouldn’t give your house to your adult children,” this means you should be strategic when you transfer ownership of your home.

Transferring ownership of your home while you are alive is not a simple as it seems.

Transferring ownership of your home when die may have tax benefits.

Many people believe gifting the home during their lifetimes is a simple solution to avoid passing this asset through probate.

It is not.

Why?

You can both place your home at risk and trigger higher taxes.

The value of a home tends to appreciate over the years.

If you have owned your home for years, this amount could be significant.

When someone dies and passes the asset through their estate, the home receives a “step-up in tax basis.”

The inherited property will not be subject to the capital gains tax up to the value as of the date of death of the last surviving homeowner.

What does this mean?

If you purchased the home in 1976 at $16,000 and then died when its current market value was $200,000, no tax will be owed by your estate on the appreciation if sold for $200,000.

If you were to gift the home to your child while you are alive, your child would be gifted your original $16,000 basis.

Depending on the sale price were your child then to sell the home, then he or she might owe capital gains tax on this growth (subject to a Section 121 exemption).

Yikes!

If you have recently made this mistake, there is sometime a window where the property can be gifted back to the parents to cancel this transaction and its consequences.

Some people choose to gift their property so it will not be counted as an asset for Medicaid qualification for health care and nursing home care.

This does you no good if transferred within five years of the time you apply.

Because there is a five year look back period, this would disqualify you from receiving benefits.

Another issue with gifting your home involves your family members.

If they have financial problems with creditors or undergo a divorce, the home could be subject to a lien or sold in a property settlement.

If you retain a “life estate” or “life interest” in the property when you transfer ownership of your home, you retain the right to continue living in the home.

The house would also continue to be a part of your estate and this, too, would have Medicaid eligibility implications.

Life interests are governed by a specific set of rules.

These specify the liability for bills on the property and what happens to it.

For many individuals, there are better options for avoiding probate and transferring the home.

If you live in a state with “transfer on death” deeds, you can transfer ownership of your home while avoiding probate.

Both Kansas and Missouri have this practical option.

A living trust would be another viable option.

To learn the best option for transferring ownership of your home, work with an experienced estate planning attorney.

Reference: MarketWatch (April 16, 2020) “Why you shouldn’t give your house to your adult children”

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