What follows are issues to consider, and, in those rare cases where a transfer can make sense, how to do it the right way.
Are you thinking about handing over the family home to your heirs early? Proceed with caution. Although the hand-off can be a blessing to some, there are consequences you should consider before passing on the house keys.
This challenge was the subject of recent article in The Wall Street Journal titled the “Dangers of Giving Your Home to Your Children.”
The family home is often the most important gift you could ever give to an adult child or your adult children. It is meaningful simply by right of being the family home and its place in the family history. When given to a young couple it is also a gift of the future, and a very practical one if you don’t need the space anymore or just wish to downsize.
Nevertheless, houses are as complex as they are valuable when considered as assets and potential tax burdens. Giving the house away early means moving a taxable asset around, and doing so at different times and in different ways will bring different tax burdens. These issues include weighing the consequences of a lifetime gift versus as a testamentary bequest. In the end, you need to fit the house into your overall plan, and carefully at that.
Then there is even more to the financial side and the darker side of liability. A house as an asset is a magnet for your younger, less financially stable child’s creditors, or soon-to-be divorced spouse, and all manners of other scaly legal problems that make claims or foreclosures upon the house under the name of that younger adult child, likely. Giving it to them to live in forever might end up risking it to creditors, and if you intend to stay living there that means putting you out too.
And what about control? Not all family problems work themselves out, after all. It is now up to the kids to keep or sell the house, even against your wishes and, again, even to evict you right out onto the curb if you intend to still live there.
So, do appreciate the house and the gift of it to your loved ones. At the same time, however, also appreciate it as a difficult transition fraught with potential issues to guard against. Once you appreciate the issues you can appreciate the solutions, and depending upon the house, your heirs, and your own needs there are many powerful solutions at your disposal. Contact you experienced estate planning counsel before your complete the gift.
Reference: The Wall Street Journal (April 13, 2014) “Dangers of Giving Your Home to Your Children”