Parents often think about transferring assets to their children outright or as joint-tenants during their life. They may believe that the transfer will avoid probate and make it easier for the children upon the parent’s death. Lifetime transfers are sometimes used as an estate planning tool in limited circumstances and may avoid probate; but, for most of the population these transfers could trigger unfavorable consequences.
There are several problems associated with an outright gift of an asset to a child or children. What if you regret your decision or realize later that you need the asset for your daily needs? Your child may choose not to give it back, or your child may not be in a position in which they can give it back. For example, your child could be involved in court proceedings with creditors or in the midst of a divorce, and now your assets look like they are your child’s assets, because they are.
Let’s look at some risks involved in transferring your home to your child by gift during your life. First, you may lose your ability to access the equity of your home if that becomes necessary for your living expenses. You will not be able to apply for a reverse mortgage, and you may be disqualified from receiving Medicaid benefits if you need full time nursing home care. What if the child you give your home to predeceases you? Will your son-in-law or daughter-in-law take care of you?
There are big income tax disadvantages, and maybe gift or inheritance tax consequences to giving assets away to someone other than your spouse. Before transferring assets during life or at death you should consult with an attorney experienced in income, estate and gift tax planning. In addition, you should never transfer an asset that you may need later in life for your health care, maintenance and support.
JensenBayles, LLP provides a broad spectrum of legal services. Thomas J. Bayles has been actively providing advice in the areas of trusts, wills, probate and tax planning in the St. George market for over 18 years. Please visit our web site www.jensenbayles.com or call 435-674-9718 and ask for Thomas J. Bayles or Phillip G. Gubler.