For many people, their house is their most treasured and valuable asset. Kids have been raised there, memories of a lifetime created, and it is only natural to want to pass the family home to the next generation and avoid probate. But is it a good idea to transfer the house to your child?
The short answer is, think before you act.
Loss of Control:
When you transfer your house into your child’s name, you lose control and the security of home ownership. In the eyes of the law, your child has full control over the property. Once you add your child to the deed, you cannot sell or refinance the property without obtaining your child’s signature. Issues surrounding your child now become your problem. If your child is unable to pay debts, a lien could be filed against the house or you could possibly lose the house if your child goes bankrupt. If your child goes through a divorce, the house now becomes part of the marital assets. Would you want your ex-daughter/son-in-law to get your family home?
Tax consequences:
By adding or transferring the whole property to your child, you are gifting that portion to them. Any time you make a gift of over $15,000 per person per year (as of 2020), you will need to file a federal gift tax return and may owe gift taxes to the IRS.
When your child receives the property as a gift prior to your passing, the cost basis of the property is approached differently than if received as an inheritance. As a result, your child may have to pay a higher capital gains tax when they sell the property. If your child were to receive the property as an inheritance through probate, the cost basis is changed and a step-up basis is utilized to value the home. For example, if you purchased your home for $100,000 and the fair market value on the day you pass away is $400,000, your child would have the benefit of receiving the stepped-up tax basis of the higher amount. If the home is received as a gift, your child could potentially owe a tax on the $300,000 capital gains.
MassHealth problems:
Gifting your house to your child could jeopardize your ability to qualify for MassHealth. You never know if a medical crisis will occur leaving a need for nursing home care. Paying privately for nursing home care in the MetroWest of Boston area averages between $13,000 to $17,000 per month, which is usually beyond most family’s ability to pay. If you transfer your house to your child and soon afterwards apply for MassHealth, those benefits could be denied or delayed for a period of time. This is based on the fact you gave away an asset within five years of applying for MassHealth for less than fair market value.
It is true, your home is your castle; and before you sign over your property, it is important to consider the risks involved. To make sure your home goes to your loved ones, consult with an experienced elder law attorney. Talking these issues through will go a long way to helping you decide whether deeding your house to your child is right for you and your family.
Founded by nurse attorney and with offices in Acton, Burlington, and Sudbury, Massachusetts, Generations Law Group helps families navigate the complex area of elder law to inform and protect loved ones in every generation.
