Some Washington residents believe gifting a house to their adult children is an ideal way to avoid probate. While it may be so, putting the deed in their names can lead to other potential problems. More creative and safer ways are available to prevent your home from going through probate after your passing.
Why people gift homes to their children
Prime reasons for estate planning include leaving a legacy to your heirs and avoiding probate for many assets. However, sometimes people want to relinquish ownership of their homes before their death because they may be in failing health and wish to qualify for Medicaid, so they put their home in a family member’s name and stay in it. You should note there is a five-year waiting period before you can qualify for Medicaid, and you won’t be able to get benefits in the interim.
The dangers of gifting your home
Often, people don’t think of the dangers that could affect continued living in your home. Even though you may agree to pay taxes and maintenance, the home could be endangered if your family member has poor finances. Creditors can file liens on property, which could lead to repossession. Another unforeseen problem is that by gifting your home to an adult child, they won’t be able to take advantage of a one-time step-up in tax basis, making them responsible for thousands of dollars in taxes.
Estate planning can avoid problems and probate
When carefully considering where you want your assets to go following your death, you can avoid probate. Many estate plan tools are explicitly designed for this purpose. Trusts are one where you can place your home so you don’t technically own it. You can also place your home in a trust to leave it to your children.
Take the time to consider how you want to bequeath your assets and help your heirs save taxes. Realize that you can also change your estate plan if your wishes change. After establishing your plan, review it every few years to ensure all components meet your needs.