Gifting Your Home

GIFTING YOUR HOME

Sometimes for estate planning or to avoid Probate it is advisable to consider whether you should Deed your house to your children or other loved one. For simplicity, we will use the term children to describe your loved ones.

There are three different ways this can be accomplished: First, you could add your children’s name to your Deed. This would result in your children owning the property totally upon your death without going through Probate. This, however, may not help for Nursing Home planning. In addition, a joint tenant has the power to force a sale of the property.

Second, you could Deed the property outright to your children. We would recommend an agreement authorizing you to live in the house the remainder of your life. Your children should also draw Wills.

You need to be aware of other consequences of such a gift. Under the current tax law, when someone inherits property, they inherit it without an income tax consequence. If you give someone property, they take it at your basis which means there could be a significant income tax consequence should they ever sell the property, if it is not their personal residence.

You also need to be aware that if you give a gift worth more than $12,000 to an individual as of January of 1, 2006 a gift tax is required to be filed.

Third, there is another type of Deed that is very popular: Deed retaining a life estate. In this Deed you Deed yourself a life estate and the remainder to your children. That way you have legally retained the right to possess and occupy your home for life. You would also be responsible for the expenses of the home during your life. You will continue to qualify for any abatements. Your children are considered to own a future interest in the home. They could only take possession after you have passed away. In addition, they cannot force a sale of the real estate while you are alive.

This type of deed has an income tax advantage. Under current tax laws, the property gets a free step up in basis when the life tenant passes away. Your children could then sell the property without a negative income tax basis.

You need to be aware however, that Massachusetts has given strong indication that at some point, they want to be able to treat a life estate as a countable asset.  Should that happen, if you do go into a nursing home and use MassHealth Benefits, when the property is sold, MassHealth would receive a portion of the proceeds. Often the income tax advantage of this method outweighs the possible MassHealth implications.

We can discuss with you the appropriate deed for your circumstances.

With regard to any Deed, you need to be aware of the significance of such a gift. Once you have deeded your interest in property to someone, you have given up control of that property. You cannot force that person to Deed it back to you. The property would then be subject to any difficulties in that person’s life, such as divorce, bankruptcy or a lawsuit. You could not sell or get a mortgage or home equity loan on the real estate without your children’s cooperation. Again, we strongly recommend that your children have a Will in place before the Deed is signed.

In addition, you need to be aware that transferring an interest in your real estate could impact your ability to get Medicaid (nursing home) benefits should you need to apply within the lookback period,  5 years as of February 8, 2006 . The lookback period begins when a person applies for Medicaid.  Under the Deficit Reduction Act of 2005 the period of ineligibility due to a transfer of assets begins when you apply for Medicaid (MassHealth), not when you make the gift.

Once you have decided to do a deed to your children, if you have more than one child there is another decision to be made: how your children will hold the deed. There are two types of tenancies applicable: tenants in common or joint tenants . If your children hold the property as tenants in common , if one of them should pass away, his or her share would go into his or her estate. If your children hold the property as joint tenants , if one of them should pass away the remaining children listed on the deed will get that child’s share.

NOTE: Please be aware that if your property is serviced by a septic system , there are additional requirements you need to follow before you can add a name to your deed or transfer your property out of your name. Also, if you have a mortgage or home equity loan , you will need to get your bank’s written permission before the deed can be drawn

If you should have any questions regarding the issues we have raised, please give us a call.

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