Many people believe that it would be easier for their loved ones if they transferred ownership of their home prior to their death. Bypassing probate in Medina County, they believe, will be easiest for everyone. That could be true. However, there are several risks to consider that might harm you or your heirs.
Hazard #1 – You could create tax problems
If you transfer your principle residence you could be disqualified from part or all of the capital gains tax exclusion causing an unnecessary tax liability. This means that if you decide to sell after sharing ownership of your home with your children, they would have to pay capital gains taxes on the increased value of the home. This is really bad news if you’ve lived in your home for many years and the value of the property has significantly increased.
Hazard #2 – House value counts against you if you need Medicaid
If you transfer your house within 5 years of needing Medicaid assistance for a nursing home, your transfer may have created a period of ineligibility. Medicaid has a five year “look back” period where any monetary gifts or uncompensated property transfers are considered and such transfers may take you above the resource limits for Medicaid eligibility.
Hazard #3 – Your loved one could get divorced
If you transfer an ownership interest of your home to your child, and then the child gets divorced, your ex-son/daughter-in-law might be entitled to part of the value.
Hazard #4 – Your child could file for bankruptcy
When you share ownership of a home with your child, you also share exposure to one another’s financial problems. If you are moving to an assisted living facility and plan to use the equity in your home to pay the rent, you may be in for a surprise if the bankruptcy court demands some or all of the proceeds of the sale to pay your child’s creditors.
Hazard #5 – Something happens to your child
If something unexpected happens to your child and he or she becomes incapacitated or predeceases you, you could run into real trouble. If, for example, your child becomes disabled and needs Medicaid coverage, he could be ineligible due to his share of the home.
Hazard #6 – Your child is a problem
After you transfer ownership of your home, you must all agree if you decide later to sell the home or even do renovations. If your child doesn’t agree with you, they can stop you. I know that it is hard to imagine your son or daughter in this light, but it happens more often than you might imagine.
The bottom line here is that you need to be very careful when considering transferring or sharing ownership of your home with your children. There are several other options to consider and it is important that you work with a qualified estate planning and trust attorney in Medina County who knows how to utilize better (and safer) legal strategies to accomplish your goals.