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Gift Your House To Your Children
Ways to Pass Property on to Children
Considerations for Passing Property to Children
“There are many ways to pass property on to children, including gifting the family home to them while you are still alive, bequeathing it to the children upon your passing, or selling the residence to your heirs.”
Whether you have a split level or a log cabin, your estate plan should be considered when passing property along to the next generation. How you structure the transaction has legal and tax implications, explains the article “How estate planning can help you pass down a house to your kids and give them a financial leg up” from USA Today.
For one family, which had been rental property landlords for more than two decades, parents set up a revocable trust and directed the trustee to be responsible for liquidating houses only when they became vacant, otherwise maintaining them as rental properties as long as tenants were in good standing. They did this when the wife was pregnant with their first child, with the goal to maximize the value to their children as beneficiaries. This was a long-term strategy.
Taxes must always be considered. When a home or any capital asset is given to children while the parents are alive, there may be a capital gains tax issue. It’s possible for the carryover cost basis to lead to a big cost. However, using a revocable trust avoids probate and gives them a step-up in basis to avoid capital gains taxes.
Using a Revocable Trust
Many families use a traditional method: gifting the house to the children. The parents retain the ownership and benefit of the property during their lifetimes. When the last parent dies, the children get the home and the benefit of the stepped-up basis. However, many estate planning attorneys prefer to have a house pass to the next generation through a revocable trust. It not only avoids probate but having a trust allows the parents to dictate exactly what is to be done with the house. For example, the trust can be used to direct what happens if only one child wants the house. The one who wants the house can have it, but not without buying out the other children’s’ shares.
Gifting the House to Children
If the children are added onto the deed of the house, keep in mind whoever is added to the deed has all the rights and liabilities of an owner. If one child wants to live in the home and the others don’t, the others won’t be able to sell the house. The revocable trust mentioned above provides more control.
Selling the Family Home to an Adult Child
Selling the family home to an adult child may work, especially if the parents cannot afford to maintain the home and the child can. However, there are pitfalls here, since the parents lose control of the home. An alternative might be to deed the property to the children, have the children refinance the property and cash the parents out.
If parents sell the home below fair market value, they are giving up proceeds to finance their retirement. If they don’t need the money, great, but if not, this is a bad financial move. There are also taxable gains consequences, if the home is sold for more than they paid. A home’s sale might result in a dramatic increase in property taxes to the buyer.
However you decide to pass the family home or other real estate property to children, the transfer needs to be aligned with the rest of your estate plan to avoid any unexpected costs or complications. Your estate planning attorney will be able to help determine the best way to do this, for now and for the future.
Reference: USA Today (Dec. 3, 2021) “How estate planning can help you pass down a house to your kids and give them a financial leg up”
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Benjamin E. Long
A Focus on Real Estate Legacy Planning
Benjamin E. Long, the founding attorney at Schlagel Long, LLC, specializes in helping families navigate the complexities of passing real estate properties, including family homes, to the next generation. Understanding the sentimental and financial value of a family home, Benjamin offers tailored estate planning solutions to ensure your legacy is preserved and passed on in the most beneficial manner.
With a keen focus on estate planning related to real estate, Benjamin is adept at advising on various methods of property transfer. These include gifting the family home to children during your lifetime, setting up revocable trusts to manage and maximize property value, and considering tax implications to avoid unnecessary burdens for your heirs. He emphasizes the importance of integrating such property transfers into a comprehensive estate plan, ensuring alignment with your overall intentions and financial goals.
Benjamin's expertise extends to handling situations unique to real estate legacy planning, such as addressing capital gains tax issues, using revocable trusts to avoid probate, and guiding families in structuring transactions to provide a financial leg up for their children. He is experienced in creating solutions for diverse family dynamics, like negotiating buyouts among siblings when only one child wishes to inherit the family home.
Educated at Kansas State University (B.S. in Biology) and Washburn University School of Law (J.D.), Benjamin brings a unique blend of technical expertise and legal acumen to his practice. A recipient of prestigious awards and honors, including being named a Super Lawyer Rising Star and receiving the Martindale-Hubbell Client Distinction Award, he is recognized for his exceptional service and client-focused approach.
Whether teaching as an adjunct faculty member at Washburn Law School or coaching the Kansas State University Mock Trial Team, Benjamin is dedicated to educating the next generation of legal professionals. His commitment to family and community, combined with his professional accolades, makes him an ideal advisor for those looking to secure their real estate legacies for future generations.
For personalized guidance on passing your family home or other real estate properties to your children, contact Benjamin E. Long at Schlagel Long, LLC in Olathe, Kansas.
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