Honey, Should we give the kids the house? Part 2
Ronald Bush
50plus Magazine
As they age, many parents (we’ll call them “Mom & Dad”) consider transferring the family home — their largest single asset — to their children.
Part 1 in this series (available online at 50Plusmagazine.net) dealt with income tax consequences. Here we discuss other serious “surprises” when Mom & Dad gift appreciated real estate without doing their homework.
Debts/Obligations Surprise
Mom & Dad’s son Ted has financial problems: he owes creditors, tax authorities and child/spousal support. If he were deeded part or all of the family home, they could become liens.
Mom & Dad’s daughter Carol has addictions which impact her finances and cognition. She is in debt, her card issuers are suing, and if she were deeded part or all of the home, her debts could also attach to the home as liens.
In both Ted and Carol’s cases, once their debts attach to the title, they impact everyone else’s interest, including Mom & Dad. It is similar to two or more people sharing a credit or bank account: non-payment or credit issues of one become everyone’s problem.
Divorce Surprise
If one or more of Mom & Dad’s kids are given an interest in the home and later divorces, the home can become an asset of the “marital estate” divided between spouses in divorce or death. The term “a married man/woman” in the deed indicates a spouse has an interest in the house.
Surviving son- or daughter-in-law surprise
Another son, Bob, now holds an interest given by Mom & Dad. Bob and his wife are in an accident in which Bob is killed. His wife survives him, but dies soon after. Their wills left whatever they owned to the survivor. In this case. Bob’s interest passed to his wife, then, her interest in the home passed to her children by a previous marriage.
Underage Child Surprise
Mom & Dad deeded their minor grandchild a 1% interest. In Oregon, if a minor child owns
real property, a Guardianship must be established to protect the minor’s interests. If other owners want to sell or refinance, they can only do so with court approval, even though the minor child owns only 1%.
Conservatorship: The incapacity Surprise
Issues such as accident, illness, dementia or “special needs” affecting one’s ability to care for him- or herself can require a Conservatorship, established through the court system. A judge’s approval is required for any and all expenditures and transfers.
Substance Abuse & Addictive Behavior Surprise
Carol’s addictions could affect title. For example, before her creditors acquire judgements, she could transfer her interest to someone else at bargain prices. Mom & Dad can’t stop her.
Medicaid surprise
Mom & Dad may need Medicaid to pay for extended care. Medicaid is a “special cases,” a federal program administered by each state. The rules are complex and applied very rigorously.
Medicaid will review the circumstances of transfers of ownership going back five years from application. If an interest was transferred as a gift or a “sweetheart” deal, the amount is considered an asset still available to the applicant. Medicaid approval is delayed until the funds that were available to the applicant are considered “utilized.”
Loss of Control surprise
When an interest is gifted, some or all control is gone. You cannot sell or borrow against the house freely as before. Also, strangers (creditors, in-laws, judges, etc.) now either share or have complete control of your home.
Tools and prevention will be presented in the final installment, Part 3, next issue.
Ronald Bush is a Licensed Real Estate Broker with Equinox Real Estate. Reach him at 541-514-1141.