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Giving To The Kids |
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Dear Edith: Recently, a senior citizen was asking me about putting the names of her children on the title of her residence.
I told her not to do that because sometime you might want to sell the property and the children might not agree to do this, so they would not sign off. I also think it could affect the "step-up" value at the time of death of the senior.
If this is true, would you explain it more thoroughly to me |
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If the children inherit the house, they get a "stepped-up" cost basis, value at the time of death. If they then sold it for about that amount, they have no taxable profit. If they receive the house as a gift, on the other hand, they take over their mother's cost basis. If they sold, they’d probably have capital gains tax to pay.
If the mother sold her home now, she could take the home sellers tax exclusion, up to $250,000 profit free of tax. Once the kids owned the place, that tax break would no longer be available. If the mother sold, the children would owe tax on her profit.
Then again, when the children own the house, it can be vulnerable to complications like divorce settlements, judgments, liens and the like.
Other considerations may be involved, though. Sometimes signing over the house is a indeed a good plan. In certain situations the homeowner’s exclusion and even the stepped-up basis can be retained. Everyone’s needs are different, and your friend needs a consultation with a lawyer who specializes in estate planning or elder law. |
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Edith
Originally published on August 6, 2006 |
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