Simply transferring your house to your children is the least favorable planning technique in an attorney’s arsenal. The optimal way to protect your house is to use a trust.
First, if you transfer your house to your children, you no longer have any rights to use an occupy the house. You become a guest in your children’s house. This gives rise to the horror stories everyone hears about children kicking their parents out of their homes. It can happen but is usually the result of poor planning like transferring your house to your children.
Second, you will lose many tax benefits such as the step-up in basis upon death. For illustrative purposes, assume you purchased or built your house many years ago for $50,000.00. This is your cost basis. Your cost basis is also increased by capital improvements made over the years. If you gift your house to your children, your cost basis becomes their cost basis and when they sell, they could have significant capital gain, which is the difference between the sales price and the cost basis.
If you die still owning your property, or you implement planning such as a trust, when you die, the cost basis of your property increases to fair market value. Thus, if your property is worth $500,000.00 when you die, your kids inherit the property with a cost basis of $500,000.00, not $50,000.00. Proper planning can save tens of thousands in capital gains tax.
Finally, if you simply transfer property to your children outright, you will lose real property tax exemptions such as the STAR exemption and the enhance STAR exemption.
Outright transfers of property are commonly recommended by non-elder law attorneys. If you would like to preserve your house, please contact us so we can explore your options which usually include the use of a trust. We can also co-counsel with your attorney to make sure all the right options are being presented.