Taxes and Gifting Your House
We all hate to pay taxes if we can legally avoid them. The transfer of your house prior to your death can cause a large capital gain tax bill to the beneficiary of the transfer. If the house transfers not by operation of your death, the recipient does not get the “stepped up basis” and can suffer a large capital gains tax bill.
If the house transfers as an operation of your death, the recipient can get the “stepped up basis” to the value of the house upon your death. There are ways to transfer the house upon your death to maintain the “stepped up basis” and minimize or eliminate the tax burden to your beneficiary. Those include a Transfer on Death designation and transfer through probate (court process to make the transfer) or the use of a trust. A transfer on death designation will avoid the need to go through probate for the transfer to become effective. The recipient will get the “stepped up basis” if the house transfers by Will or intestate succession through the probate process.
The probate process is fairly streamlined in Ohio and is no longer cost prohibitive. If you choose to use a trust to hold and distribute your assets, this will avoid the probate process and transfer your house with minimal tax consequences. If you have transferred the house, and the beneficiaries are facing tax consequences, there may be a way to use the retention of a life estate retained by you as the transferor of the home. You will want to be sure to address this option with an experienced estate attorney.
Gifting and Transferring Your Home to a New Owner
If you transfer your home to your children during your lifetime it becomes their property. That means that it is subject to actions by their creditors. You could lose your house if the new owner gets behind on their debt, hurts someone in an accident, and/or is sued beyond their insurance coverage. This is not a risk that should be taken lightly or without exploring all legal options with your attorney.
Transfer of Your Home to Qualify for Medicaid
In Ohio, Medicaid has a five-year lookback for all transfers of your assets for less than fair market value. If you transfer your home to your kids, you could not have qualified for Medicaid for over a five year period. If you need Medicaid in that time, the only way to qualify is to get the house back and either sell it to pay for your care. You can also choose to have your transfer recipient pay for the house and use that money to pay for your care, or you can choose to sue your transfer recipient for theft if they will not give you the money for the house or the house.
There are ways to protect the house for a child who has moved in to care for you and made the house their permanent residence and has been there for over two years. There are very specific rules related to this type of protection for your home, and you should consult with an experienced probate and estate attorney before using this or any option.
Estate Planning Lawyer in Northeast Ohio
While protecting your house for your children is a great gift to them, you want to make sure that you do it properly so your gift does not turn into a burden. Moseman Law Office, LLC can help you work through the options and choose the one that best benefits you and your family. Contact us today for an appointment to discuss your estate questions.