The Risks Of Giving Your Home To Your Children

Some parents consider transferring ownership of their homes to their children. Why? Many believe that it is a classic win-win situation. They can continue to live in the house, while at the same time reduce the value of their estate for tax purposes and provide a valuable asset to their kids down the road.

If you are considering such a transfer, an article in the Wall Street Journal explains why you should think long and hard before doing so. Here are a few factors to consider.

Loss of security
What if one of your children gets divorced and the ex-spouse decides to make a claim on the home? Or let’s say one of your kids loses a lawsuit, or defaults on a loan? In that case, creditors could make a claim on the home—you and your spouse might very well be evicted. Not exactly the way you had hoped to spend your golden years.

Medicaid ineligibility
If you apply for Medicaid assistance to pay for long-term care within five years of transferring ownership of your home, your application will probably be denied. Why? Medicaid has what is called a five-year look-back period for gifting. You could be ineligible for Medicaid assistance for years, depending on the length of time between your transfer of ownership and your application for benefits. Given the cost of long-term care, this could be financially devastating for you and your spouse.

Loss of reverse mortgage option
While reverse mortgages are not for everyone, in certain situations, they can be effective wealth preservation tools. Transferring ownership of your home to your children eliminates this option.

Are there any situations when transferring ownership of your home to your children makes sense? Some, particularly for families with sizable estates and the transfer would reduce estate value to an amount where estate taxes are minimized or eliminated. However, if you plan to live in the home after transferring ownership, it is advisable to take additional legal steps to protect your interests. These include life estates, qualified personal residence trusts, defective grantor trusts, and more. Contact our New Jersey estate planning lawyers to learn more about these options.