Don’t Give Your House Away With a Lifetime Deed | Springdale Estate Planning Attorney
In the next 3 minutes I’m going to tell you why you don’t want to give your house to your children during your lifetime and what to do instead to avoid taxes and probate.
For those of you that don’t know me… My name is Gary DeWitt and I’m the founder and owner of DeWitt Law Firm where I’ve helped 1000’s of individuals and families create effective estate plans to eliminate probate and more legal problems.
In the next 3 minutes I’m going to tell you why you don’t want to give your house to your children during your lifetime and what to do instead to avoid taxes and probate.
What I mean by lifetime deed is a “quit claim” or a “warranty” deed. In just a minute I’ll explain another type of deed that is MUCH better.
If you don’t want to load your children up on capital gains tax, then don’t give them the house with a lifetime deed. There are also other issues you may not have considered…
If you need Medicaid within 5 years of the gift, then Medicaid will deny the application because you made a gift of your home. The denial will be in the form of a “penalty period.” This period will last months to years during which you or your children will have to pay out of pocket.
The second reason is taxes.
If you don’t want to load your children up on capital gains tax, then don’t give them the house with a quit claim deed. There are also other issues you may not have considered…
When you give your house to your children, capital gains tax is calculated based on what you paid for the house, not what it was worth the day of the gift.
For example, you buy a house for $100,000. It’s worth $200,000 the day of the gift. And it is worth $300,000 the day you pass. Your children will pay capital gains on $300,000 – $100,000 for capital gains on $200,000. If you use a beneficiary deed instead, they would pay little to no capital gains.
Third, your children can have you legally evicted.
Fourth, their financial problems become your financial problems. Every other driver on the street is now a possible lawsuit that “your” house can be used for. You children’s credit issues, medical bills, lawsuits, and more become your problems. The house becomes an asset that can be used to pay for their issues.
Fifth and finally, it is difficult to impossible to change. If you change your mind later, then the child or children have to sign the new deed. I have seen it more than once where they refuse.
The solution to this problem is straightforward. I can write a type of deed, known as a “beneficiary deed” in Arkansas. This deed lets you give the house to who you want and keep lifetime control. Your children will save on taxes. Their problems do not become your problems. You don’t run into as many Medicaid issues. And you can change this deed anytime you want without their signatures.