Many residents of Cocoa contemplate a variety of estate planning options over time. While we don’t give advice in our Brevard County legal blog, we do share thoughts about some of those options.
We read recently a personal finance columnist’s thoughts on adding an adult child to your house deed – or even giving your offspring the house outright. Liz Weston of NerdWallet writes that while handing over your house “might seem like a smart thing to do . . . it usually isn’t.”
Weston acknowledges that transferring your home while you’re alive might well enable your adult child to avoid probate, but the gift “can result in a big, unnecessary tax bill and put your house at risk if your kids get sued or file for bankruptcy.”
She also writes that it can be a “big mistake” even if you hope that the transfer of the home deed will help you keep the property “from being consumed by nursing home bills.”
She writes that if you bequeath the house (which means the child or children get the property after you pass), they will also get the “gift” of a “step-up in tax basis.” Why? The appreciation in value while you owned the home was not taxed.
That appreciation wouldn’t be taxed if your child simply inherited the house, but it could well be taxed if the property is bequeathed to him or her.
A financial planner related a story that illustrates a potential problem with handing over the property while you’re alive. A woman who bought her home for $16,000 back in 1976 gave her house (now valued at $200,000) to her son. The mom signed a quit claim to give her home to her son – and she passed away soon after.
The son was then hit with a tax bill of $32,000.
The better approach is to talk over these kinds of decisions with your Brevard County estate planning attorney who can help you avoid tax liabilities and take advantage of estate planning tools that protect assets and loved ones.