Many people ask us the same question: “Is there really any harm in gifting my residence to my children during my lifetime to avoid probate when I die?” While you may have a good relationship with your children now, we almost always advise against this for several reasons, some of which are described below.
First, the hard truth is that your relationship with your children may change in the future. Once your children own your residence, they have no obligation to support you or continue to let you live there.
Additionally, if you transfer ownership of your residence to your children, that property becomes their asset, which is then subject to their financial liabilities and creditors. Moreover, if your children have financial problems, they may decide to sell the house, potentially leaving you without a place to live.
Also, if you transfer your residence to your children during your lifetime, they will lose out on receiving the “stepped up basis” that they would receive if they inherited the residence from you upon your death. If you transfer your residence to your children during your lifetime and they later sell the property, their “basis” for capital gains tax purposes will likely be the original purchase price. However, if your children inherit your residence upon your death, they receive a “stepped up basis” and their “basis” becomes the value of the property on your date of death.
We believe there are usually better ways to protect your residence from probate, including establishing an Inter Vivos Trust.
[Disclaimer: The materials contained on this website have been authored or gathered by the Law Offices of Stuart D. Zimring, and are intended for informational purposes only. It is not intended to be and is not considered to be legal advice. Transmission is not intended to create and receipt does not establish an attorney-client relationship.]