[vc_row][vc_column][vc_column_text]July 18, 2011
This question arises frequently during estate planning, either at a lawyer’s office or while consulting financial planners.
There are often good reasons to transfer the house to adult children. This may avoid probate, which both speeds up a sale after death and reduces probate fees (taxes). If the parent is removed from title entirely, the deletion of this asset from their financial statement may enhance eligibility for government benefits. If one or more of the children live in the home, or wants to in the future, putting them on title early may smooth that transition.
Nothing in law is that simple though.
First, if the children own their own homes, taking title to a parent’s home may create tax trouble. The increase in value of a principal residence is treated differently than other property. The value of the home and its likeliness to increase in value must be considered. If there are several children involved, it becomes complicated.
For example, whether the house is transferred outright to the children, or jointly to children and parents, if any child not living in the house is not be able to claim it as their principal residence, growth in their share may be subject to taxation. To measure that growth in value, the value at the time of the transfer should be determined by an opinion or appraisal from a qualified realtor. Doing it later on death or sale is less reliable.
How many children will share title? Will they be able to agree about disposition, maintenance, and other issues? If the intention is a smooth inheritance, do they take as joint tenants (last survivor takes all, the property stays in the family), or tenants in common (on their death, their heirs get an interest)?
If the parent intends to remain in the home, who pays the expenses? What if the parent initially can pay, but later can not? What happens if the parent ends up in a hospital, and return to the home is uncertain? Who does the upkeep?
These questions and others are best addressed before transferring title, and ought to be discussed with your lawyer, and then set out in an agreement so that the understandings are clearly recorded, and future disagreements are more likely to be avoided, or resolved easily.