Many people want to deed their house to their children or someone else while they are still alive for several reasons. Before you deed you house to someone else, you should know that deeding your house creates risks. It could jeopardize your health, wealth, and security. There are alternatives to deeding your house. For instance, you can write a will that transfers ownership of your home to those you choose after your death. Deeding your home is generally a bad idea for several reasons, including the following:
- You will no longer own your house;
- You could leave out some of your heirs;
- Capital gains tax may be incurred;
- You could jeopardize Medicaid eligibility.
Some of the most frequently asked questions about deeding your house are:
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Why will deeding my house mean I will no longer own it?
A deed is a legally binding document that changes the ownership of your home. Once recorded, ownership cannot again be changed except by preparing a new deed. This requires the agreement and signatures of all the owners. If you, as the owner of your home, sign a deed and give away all or part ownership, you cannot get it back without the consent and signatures of those to whom you've given ownership. If you give away full ownership, the new owner can evict you from the property or sell the property. Even if you give only part ownership, the person (or persons) to whom you give ownership will have rights and responsibilities. When you sign and record or deliver a deed, your entire property becomes subject to any judgment of debt against the new owner or part-owner. Property owned jointly between you and your child can be seized and sold to pay a judgment against the child as well as a judgment against you, even if you are living there. If you keep a life estate for yourself, you will have some protection, but it is not absolute. Therefore, your security of ownership and occupancy of your home is at risk should a child, co-owning your property, become indebted. If you try to avoid this risk by not recording the deed but rather leave it to be found and recorded after your death, the deed could be found invalid.
How can deeding my house leave out some of my heirs?
By deeding part ownership in your property to any person (including a child or children) as "joint tenants [with you] with full rights of survivorship," your other heirs have no enforceable legal claim on the property. Upon your death, the person named as joint owner will own the property outright, even if your Will expresses a different intent, such as dividing ownership among all your children. An oral agreement between you and a child to distribute the property to others is not binding.
What are the tax consequences of deeding my house?
Although there are not necessarily tax consequences to you, your children may pay a significant tax on capital gains from the sale of your home if you deed it to them. They can avoid the tax by acquiring your home through probate of your Will, a process that usually costs less than the taxes created by deeding your house. The amount of taxes your children have to pay if they sell your home after your death depends on how they acquire it. For example, suppose you bought your home for $30,000 (also called its "original" value), but the present value has increased to $95,000. If you sell the home before your death for $95,000, you would have a capital gain of $95,000 minus $30,000 or $65,000. As the resident, you would likely be exempt from a tax on that gain. However, in most cases your children would not be eligible for this exemption, and could pay tens of thousands of dollars in taxes on the sale of your home. If you deed the home to them, they are likely subject to this tax. If they instead get the house under your Will, and then sell it for $95,000, they would have $0 capital gain and $0 tax liability. This is because tax laws provide that the home’s value when you die is their "original" value, if the house goes to them through a Will. The cost to probate a will is usually far less than the taxes created by deeding your house.
How will deeding my house affect my Medicaid eligibility?
You jeopardize your eligibility for Medicaid assistance if you have deeded your house to someone else for less than fair market value. Should you need to go to a nursing home or incur medical expenses beyond your means in the next five years, you might not receive government assistance.
What should I do instead of deeding my house?
This is not an easy question to answer because there is no one answer for everyone. It depends on your situation. However, for most people, writing a Will that transfers ownership of your home to those you choose after your death will be the best option. However, since each situation is different, especially for those with large estates (over a million dollars) or special needs, you should contact an estate planning attorney to guide you through the options. If you are 60 or older, you may also contact Utah Legal Services at 1-800-662-1704 to see if they can give you more information.
Isn't it worth deeding my house to avoid probate?
That depends on your situation. Except for those with large estates (over a million dollars) and/or those with special needs, probate may be the best option. There are many advantages to probate that work for most people. However, since each situation is different, you should contact an estate planning attorney to guide you through the options. If you are 60 or older, you may also contact Utah Legal Services at 1-800-662-1704 to see if they can give you more information.
The information in this site is not intended as legal advice.