Why You Should Devise a House in Your Estate Plan Rather Than Gifting While You’re Alive
As you age, you may consider giving your home outright to an adult child, or adding them to the deed. However, this typically is not your smartest move if you wish to transfer ownership of the property.
While transferring your house to your children while you’re alive helps them avoid probate, gifting a house can also result in a massive tax bill that could create financial difficulties for your child.
Some people attempt to transfer a home to try to qualify for Medicaid. However, keep in mind there is a lookback period of five years for spending down for Medicaid, and if the transfer of the home happens in that window it could lead to a significant penalty that could result in you being denied Medicaid benefits. Also, in many states, including Florida, such a move is unnecessary.
How you should pass on your home
If you devise the home to your child or other beneficiary upon your passing, they will receive a step-up in tax basis. This means the appreciated value of your home will not be taxed. Say you purchased a home for $100,000 and it’s worth $200,000 upon your death. That means your chosen heir will not be taxed for the $100,000 increase in appreciated value that would otherwise be taxed in other types of transfers. If they received the home from you by lifetime gift, they would have to pay income taxes on that appreciation whenever they sold the home.
Giving the house as part of your estate plan also allows you to place it in a trust, meaning it could bypass the probate process and help you avoid other complications or expenses.
For more information about how you should pass your house to a child or other beneficiary, contact a trusted Tampa estate planning lawyer at BaumannKangas Estate Law.