Q: What do you think about putting my home in my son’s name?
A: Changing the title to a home seems to be one of the most common estate planning ideas that folks come up with. However, in most cases, I don’t think it’s that good an idea. We can usually come up with a way of accomplishing your goals without going to this extreme.
If your goal is to avoid probate, this will work. If your goal is to avoid inheritance tax, assuming that you live for at least one year after making the conveyance, this will work. If your goal is to remove the asset for Medicaid purposes, assuming you survive the look back period, this will probably work.
Now for the downside. First, you no longer own your home; your son does. Since your son owns the home, he can do with it what he pleases. He could evict you, sell it, mortgage it or do anything else that a property owner can do.
Now you might think, "My son would never do that," and you are probably right. But what about your son’s spouse? If your child divorces and he owns the home, it could be a marital asset and therefore included in a divorce proceeding. I’m not a family law attorney, but it sure sounds like it could lead to issues.
Now even if your son doesn’t mess with the title or try to put you out on the street and stays happily married, remember that the home is available to his creditors and judgment holders. If your son has a judgment entered against him, the judgment holder could try to attach the home and sell it to pay the judgment.
Same thing goes for tax liens. If the government decides that your son should have paid a little more and starts looking for something to lien, it could be the home.
There are a couple of other potential tax issues to consider. First, unless your home is worth less than $13,000, you have to file a gift tax return and report the gift. You may not have to pay any tax, but you should file the return.
On that same note, remember that if you gift the home to your son, he takes your tax basis in the property. That means if you bought your house 50 years ago for $25,000 and your son sells it for considerably more, there could be a capital gains on the sale and tax due.
Like I said, in most cases, I don’t like to transfer title to the kids for estate planning purposes. There is almost always a better way to accomplish your goals. Consider those options before gifting the house.