Thou Shalt Not Gift Thy Home

8 Jun 2023 · 1 min

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In this estate‑planning advisory video, the speaker warns against transferring a primary residence to a child by quit‑claim, adding the child’s name to the title, or selling the home for a nominal amount. While such transfers may seem to avoid probate and Medicaid recovery, they create a new problem: the child becomes responsible for capital‑gains tax on the appreciation when the property is later sold. The speaker illustrates this with a $250,000 purchase price rising to $450,000, resulting in $200,000 of taxable gain. The recommended solution is to place the home in a revocable living trust, allowing the owner to retain control during life and enabling heirs to inherit the property tax‑free upon death, thereby sidestepping both probate and capital‑gains issues.

Chapters

Do not give your house to a child. Do not quitclaim your house to a child. Do not add your child's name to the title. And don't get cute and sell your house to your child for a dollar. For some reason, people think that's going to take care of all the problems. It doesn't. I've talked about this before, but for some reason, people still think it's a good idea. I understand you're trying to get around probate, you're trying to avoid Medicaid recovery. If you do gift it and 5 years passes, yes, you get around the Medicaid recovery, but there's another problem looming. Everybody say it in unison with me, capital gains tax. If you bought that house for $250,000, you gift it to your child, and now it's worth $450,000 and they try and sell it, they're going to be responsible for the capital gains tax on $200,000. What's the answer? Again, say it with me, revocable living trust. Put that house in a revocable living trust, leave it to your kids. When you die and they inherit it, they will inherit it tax-free.