Should I Give My House and Stuff to My Kids to Protect My Assets?

Posted on

Dec 15, 2017

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This is a common question from clients, especially from baby boomer and senior clients. When I ask them why, they usually say they were told that is the best way to protect the house and stuff from the nursing home.

As an elder law attorney, I always answer that doing so is very risky, and rarely worth the potential benefit. Often, people get confused with what they can, vs. what they should do. The tax laws allow a person to give away $14,000 a year to every family member. The same family could also give away $5.49 million from each spouse. Essentially, most of us could give our assets away without owing any tax. (You might have to file a gift tax return if over $14,000, but owe no taxes). However, should you?

Consider these points.

First, a gift is non-taka-backable. You may chuckle, but it is true. Once the gift is made, it is irreversible. What if you and your child don't see eye to eye in the future, or your child gets divorced, has a stroke and needs a nursing home, or is responsible for a horrific car accident? These are real-life occurrences, with significant consequences for the property you gave them. Also, a gift can result in significant capital gains if the child sells the property later.
The better path is for the parents to retain the asset in their names, or have them in a trust that they control, which will give a stepped-up basis on the propertys value at their deaths. Although the children will pay 4.5% inheritance tax, with a stepped-up basis they will avoid a 15% or 23.5% capital gains tax.

Also, what if your child dies before you? The childs Will probably leaves all assets to the childs spouse, your in-law, who will certainly take care of you. What happens if the spouse remarries? Are you still as confident?

Further, if you or your spouse apply for Medicaid, there is a five-year lookback penalty period for all gifts you made.

These situations may not occur, but the risk is not worth taaking when there are ways parents can largely control their assets and still receive asset protection and a stepped-up basis. It is important to talk to a certified elder law attorney to help you weigh the risks.

Editors Note: This article was contributed by Jeffrey Bellomo, a Certified Elder Law Attorney and Principal of the law firm of Bellomo & Associates, LLC.

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