Should I Put My Home and Other Assets in My Kids’ Names?

If you’re here, it means you are probably wondering whether or not you should put your home and other assets in your kids’ names. In this video, I’ll tell you why many people have been told to do it or consider doing it, why you should NEVER do it, and what you should do instead.

One of the most common questions I hear from clients is whether or not they should put their home and other assets in their kids’ names or otherwise just give everything to them. Usually, it’s because someone told them that if they do that, it means their family will not have to go through probate upon their passing and/or that doing it will protect their home and savings if they need to go into a nursing home. Unfortunately, if you put your kids’ names on things, it tends to cause more problems than it solves.

There are gift tax issues.

At the time of this video, you can give away $17,000 per person, per year, without needing to file a gift tax return. If you put your kids’ names on your home for example, you have given them a gift of the present value of your home. Since that likely exceeds $17,000 in value, you need to file a gift tax return.

You’ve created a potentially large capital gains tax issue for your kids.

To illustrate this, let’s assume for a moment that you paid $100,000 for your home when you purchased it 30 years ago and that it is now worth $350,000. Your basis for tax purposes is what you paid for it (plus any improvements over the year), but let’s call it $100,000. If you put your kids on title, you are giving them your basis of $100,000 for tax purposes.

When you pass away, since your kids are listed as the joint owners, they will own the home and will not have needed to go through probate. That is the advantage to this. However, when they sell the home for $350,000, they will need to pay capital gains tax on the $250,000 of gain. If the capital gains tax rate is say 20% at that time, that is a $50,000 tax bill.

If you gave them your home after your passing, the basis for tax purposes would have adjusted to the fair market value at the date of your death, $350,000, and they will have saved $50,000 in taxes.

I once had a woman contact my office as her mom was in the process of selling her home after the passing of her dad. Unbeknownst to her, her parents had put her on title to their home. Once her dad passed, her mom decided to sell the home and move into something smaller and closer to her daughter and the grandkids. The title company called her to obtain her social security number and bank information so that they could transfer a check for her share of the sales proceeds and report the sale to the IRS for tax purposes. I explained that since her parents made her an owner, she was going to have to pay capital gains taxes on her share of the proceeds. She then told me that “it’s my mom’s money though and she needs it to purchase her new home.” I had to explain that it is her money, she can pay the taxes out of her share of the proceeds and then give the balance back to her mom. However, she would need to file a gift tax return since the money she would be giving to her mom was a gift. It has become a running joke in the office how often I say this, “I don’t make the law, I just tell you what it is, how to work with it, how to make it work for your benefit, and yes, a lot of it is often non-sensical to me too.”

I am not saying you should not do gifting. Gifting, when done as part of an overall estate planning strategy can be useful. However, the law is titled towards giving things to your kids after your passing rather than while you are alive.

You may have just given the asset to someone you did not intend without knowing it.

Depending on your state of residence, spouses may automatically receive a legal interest in assets owned by their spouse even if they, themselves, are not listed on the title. For example, in MN, spouse’s automatically have an interest in any real estate owned by their spouse even if they are not listed on title.

I once had a woman referred to me by her daughter’s divorce attorney. She apparently had taken the advice of a previous attorney who advised her to list her daughter as an owner on her home, bank accounts and other assets. Now that her daughter was getting a divorce, her soon-to-be ex-son-in-law was asking the Court to obtain his share of the assets her daughter now owned as part of the divorce proceeding.

The assets are not protected for your kids.

Much like in the last example, if your kids get divorced, get sued, have a job loss, or a medial emergency, since they now own those assets, they may be fair game for their now soon-to-be ex-spouse or other third parties.

You are now subject to the potential creditors, claims and issues of your kids.

If the person you are making an owner has creditors or other issues, you get invited to their party. In the 90’s well-known actress and model, Jill Goodacre, put her dad on her checking and savings accounts so that he could pay bills for her while she travelled. However, Jill did not know that her dad had creditors. When the creditors located the account with his name on it, they were able to clean out the accounts in order to satisfy the judgment. Apparently $80,000 of Jill’s money went to her dad’s creditors. To make matters worse, the transfer was deemed a gift from her to her dad and so she was required to file a gift tax return with the IRS for the “gift” to her dad.

The transfer may disqualify you for benefits you may otherwise have been entitled to.  

People often hear that if they transfer their home and assets to their kids, it will protect them in the event they ever need long-term care or to go to a nursing home. The rules for qualifying for benefits are extremely technical and must be strictly followed. When done incorrectly, you discover that not only are your assets not protected, but you may not qualify for benefits you may otherwise have been entitled to. That is why it is important to work with an experienced attorney in order to protect your home and assets.

So what should you do instead?

Consider using a trust to avoid probate.

IF you want to avoid probate, you should consider using a trust or trust(s). A trust can make it easier and less expensive for your family to manage your assets during any period you may be incapacitated and to transfer assets upon your passing while avoiding the issues I’ve discussed. The trust can also be designed to protect the money you leave for your children and grandchildren in the event they get divorced, get sued, have a medical emergency, job loss and more.

Lastly, with careful planning you can actually obtain the care and benefits you or a spouse may need without losing your home and life savings. However, as I said the rules are strict and complex and you should work with an experienced attorney.

If you would like to learn more about Why Your Existing Estate Plan  (or lack of one) may Fail Just When Your Family Needs It Most, and How You Can Put a Plan in Place to Make it as Easy and Inexpensive as Possible For Your Family While Protecting Your Assets… I will be hosting a free, online masterclass, where I will be revealing what you need to know about powers of attorney, living wills, health care directives, wills vs. trust, tax minimization strategies, how to protect the assets you leave to your family in the event they get divorced or sued and much more, Click Here to Register.

And if you’d like to learn how you can protect your home and life savings from long-term care and nursing home costs, download my free Guide, “Save My Home: How to Protect Your Home and Life Savings from Long-Term Care and Nursing Home Costs”. You can download the FREE guide by Clicking Here

And if you would like to schedule a time to discuss putting a plan in place for yourself or a family member, please call us at (763) 420-5087 for our Minnetonka, MN office or at (941) 909-4644 for our Venice, FL office or email us at [email protected]

Chuck Roulet
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Nationally Recognized Estate Planning Attorney, Author, and Speaker