Article 97-Estate Planning Series: Shortcuts to Your Estate Plan That Really Aren’t
There are many ways in which people take shortcuts to pass on assets to their children. One of the most common shortcuts I see is a parent that signs a deed transferring the home to their child while the parent is still alive.
At first glance, this may look like an attractive option. The child will allow the parent to continue living in the home and, upon the parent’s passing, the child will be able to sell the home. However, the costs starting showing up later and very possibly will far outweigh any savings the parent thought he or she would receive.
First, do not underestimate the cost of giving up control over those assets while you are still alive. Even if there is not an immediate financial cost, the control you give up may never be recovered. I have seen too many examples, where as circumstances change, this cost turns out to be extremely high.
The financial costs can also be high. For example, the parent will no longer be able to claim a homeowner’s exemption on the property because the parent is no longer the homeowner. The child won’t receive the exemption either because it is not the child’s residence. Depending on the parent’s income, there may be other property tax savings the parent could have claimed that the child cannot. It does not take long for this lost tax savings to add up.
Also, if the home has been owned by the parent for many years (and was obtained at a much lower cost compared to its current value), passing the home on by gift will likely result in much higher taxes when the home is sold. These costs, together with the risk that comes from giving up control of a significant asset, likely makes this shortcut a far more expensive (and risky) decision in the long run.
© 2017 Steven J Wright
Tags: Deed, Homeowner's Exemption, Property, Property Taxes