Leaving your home to your child involves a number of different steps and considerations. You will have to determine the value of your estate and whether it will be taxed. You will also need to consider possible loss of control of the property, depending on how it is setup. Outside issues like a marriage or divorce of your child might also affect the transaction. There are many issues to consider before deciding to move ahead with this decision.
Dollars and Sense
There is a difference between leaving your house to your children now, or leaving your house to future generations, later. These two scenarios are treated very differently when it comes to taxes and your estate. Let’s start with the fiscal issues.
Assess the Value
When passing any assets to your children or heirs, you must first consider the value of your estate and whether it will be taxed. You may also want to identify assets that could be sold, in order to satisfy any taxes on the house.
Create an Estate Plan
Contact an experienced Alaska estate planning attorney to properly draft either a Last Will and Testament or an estate plan with a trust. This will document your wishes and how your estate will be divided. Once that is accomplished, you may want to fund the trust by transferring the house title to the trust. This makes the trust the owner of the property. As trustee, you will still make decisions for the property.
How Much is Your Estate Worth?
Next you will need to assess the value of your estate and determine whether any tax will be owed upon your death. Lastly, if you so choose, you can apply for life insurance for the amount of taxes owed.
Evaluating the Risks
While this sounds simple enough, there are many, many macro and micro decisions that must be made when creating an estate plan. Some estate plans are more complicated than others, but all include some risk that must be assessed and property or minor children who must be protected.
It’s good to have an idea about how you would like your estate to be organized. But when it is time to make it official, a professional and experienced Alaska estate attorney could save you time, trouble and money down the road. If after your death, the documents within your trust are not signed properly or don’t agree, your entire estate could end up in probate.
Is Transferring Ownership of Your Home a Wise Decision?
At the Office of Constance Aschenbrenner, we are often contacted by families who want to hand over their home while they are still living. If this is your plan there are still fiscal and practical decisions to be made, some of which could put you at risk. For this reason we strongly encourage you to seek counsel to guide you through the process.
Loss of Control
The first risk is loss of control. If you sign your house over to your child and they decide to sell it, you will not be able to stop them. If you transfer your property into your child’s name then you will no longer be the legal owner of the property. Therefore, if you decide that you wish to sell your property, you first have to have the agreement of the new owner in order to do so. Additionally, if they wish to sell the property, they will be able to do so without your permission.
You might also consider how life events may change circumstances for you and your child. It is possible that your child may become ill, face a financial crisis, marry or divorce. These status changes would mean changes for you too. In the case of divorce, your child’s soon to be ex-spouse would have a legitimate claim against their estate, which would also include your house. If your child had an issue with bankruptcy, that could also affect your property. Your child should also consider their ability to pay any capital gains tax.
We are often contacted by clients who are thinking about moving their home to a trust, in an effort to protect it, should they need long-term care. Simply adding your child’s name to the title of your home will not do this. At AK Wills and Trusts we provide estate planning, which can include a plan for elder care. Feel free to contact us with your questions. You may also want to sign up for one of our free workshops where you can ask questions and begin the planning process.