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Gifting your house to your children or your estate’s intended beneficiaries can have several potential estate planning complications that you may not be aware of. For many people, the goal of making such a gift is to protect the asset from potential creditors or to avoid probate by moving assets out of their name before death. However, doing so can actually create a lot of estate planning headaches. Here are five of the most significant reasons why gifting your home may be a bad idea.
1. Loss of Control
Once you gift your house to your children, you no longer have any legal control over it. You can’t sell it or refinance your mortgage. Your children can decide to do whatever they want with it, and you would have no legal recourse to stop them.
2. Tax Implications of Gifting Your House
Gifting your house may trigger gift tax or capital gains tax issues. If the value of your home is above the annual gift tax exclusion amount, which is $17,000 per donee for 2023, you may have to pay gift taxes, which can be anywhere from 18-40% of the gift, depending on the amount of the gift. If the grantees of the house decide to sell the house, they may be required to pay capital gains taxes on the difference between the sale price and the value of the house when you gifted it to them.
3. Medicaid Eligibility
Many people mistakenly believe gifting their house will enable them to qualify for Medicaid and protect the asset from being seized once they have passed away. However, if you need long-term care and apply for Medicaid, gifting your house can actually disqualify you from receiving benefits for a period of time. Medicaid has a look-back period, and any gifts made within that timeframe can affect your eligibility. If your primary reason for gifting your house is to qualify for Medicaid or protect the asset from creditors, like Medicaid, it’s critical you meet with an estate planning attorney who can help you properly transfer ownership of this and other assets.
4. Family Conflict
Gifting your house can also create family conflict if not done properly. If you have multiple children and you gift your home to one of them, it can cause resentment among the others. Alternatively, if you gift your house equally to multiple beneficiaries, particularly if those beneficiaries do not get along, it can create significant difficulties in managing the property.
5. Creditor Issues
If one of your grantees encounters financial difficulties or goes through a divorce, the house may be subject to division or seizure. Creditors can place liens against the grantee’s portion of your home, enabling them to force the sale of your home to recoup the losses. Additionally, the grantee’s portion of the home may be considered a marital asset, which could impact the divorce settlement.
While there may be many reasons you’re considering gifting your house, it is important to consult with an estate planning attorney who is able to anticipate the potential complications and create a estate plan that will meet your goals while protecting your assets. At Pierce Legal, we take the time to get to know each of our clients so that we can fully understand their situations and estate planning needs. We can create a nuanced, individualized plan that will protect your assets and avoid these complications from gifting your house. Contact us today to schedule a consultation at (330) 588-6115.