Honey, Should we give the kids the house? Part 3

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 dealt with the income tax consequences of gifting the family home to the kids. Part 2 covered other undesirable consequences. Part 3 explains how to avoid problems should you choose to give your kids the house.

Mom & Dad were unaware of the problems regarding ownership, marital estates, liens, minor children, etc. resulting from gifting their home. They did not know they were using

 the wrong tools.

TOOLS AVAILABLE: deeds, wills, trusts.

There are ordinarily three major tools available: 

DEEDS convey title. While deeds are effective for transferring title, they are not effective for avoiding the  kind of consequences we see here.

WILLS memorialize one’s wishes upon death. Wills are effective tools, but are only activated only upon death, not during one’s lifetime.

TRUSTS deal with these issues both while still alive and after passing. Please note this series deals only with real estate — the family home. Other issues important to investigate include Beneficiary Provisions such as bank accounts, insurance policies, retirement plans/accounts, etc. These are all ways to pass on assets, and should be discussed with an advisor.

REVOCABLE LIVING TRUST. This effective legal tool allows one to retain control. “Revocable” means it can be amended in the event your circumstances or desires change.  Talk to your advisor to explain the advantages/disadvantages and ask questions.

There are many benefits of trusts. A Revocable Living Trust allows Mom and Dad to stay in their home for as long as they are able, avoids the “due on sale” problem, preserves the Step-Up in Basis for the kids, insulates title from the kids’ financial problems, if any; keeps the property within the immediate family (away from in-laws); makes a gift to a minor child without requiring a Guardianship; avoids Probate; provides for incapacity; protects a donee after Mom & Dad’s deaths and more.

This article is not and should not be considered advice for your specific situation. It is for informational use only. Please consult with a qualified professional, such as attorney, CPE or CFP about your specific circumstances and needs.

See Parts 1 and 2 of this series at 50plusmagazine.net

Ronald Bush is a Licensed Real Estate Broker with Equinox Real Estate. Reach him at 541-514-1141.