You might have heard that putting your house in a trust is a great way to pass your family home to your children. However, this is not blanket advice. Every situation is different. What might be good for one family might not be good for another family. There are several ways that you can transfer your home to your children, each with its own benefits and drawbacks. If you are interested in passing your family home to your children, consider contacting an experienced estate planning lawyer with Harrison Law, PLLC by calling (480) 320-2310.
Why You Might Want To Transfer Your House to Your Children
There are many reasons why someone might be considering transferring their house to their children, such as:
- They want to help reduce their children’s future living expenses.
- The parent wants to offload the burden of maintaining the home to someone else.
- Parents want to downsize.
- The children have an emotional connection to the home.
- Grandparents want to provide stable housing for their grandchildren.
- The house is the individual’s most valuable asset, and they want to pass it to their children.
By thinking carefully about the motivations for transferring their property to their children, individuals can better determine the best option for completing this transaction.
Advantages of Putting Your House in a Trust
Putting your house in a trust is certainly one method you can consider for transferring your property. There are several potential advantages of putting your house in a trust, including:
- Avoiding probate—Probate is a time-consuming and cumbersome process. Real property often is the catalyst that requires probate if not addressed in an estate plan and trust. When an individual transfers their real property to a trust it helps avoid this future court involvement.
- Faster transfer – Putting the house in a trust allows the parent to transfer their property more quickly, rather than having their children wait months or years for the probate process to conclude.
- Personalized instructions – Leaving the house in a trust can also allow the individual to establish instructions regarding how they want the house to be used. Unless this is a large property and/or generational ties exist, more likely the instructions will be to sell the property and any equity divided between the beneficiaries.
- Asset protection—Certain types of trusts can protect an individual’s property from creditor claims against the estate or from being lost in case of divorce.
Disadvantages of Putting Your House in a Trust
While there are some benefits to putting your house in a trust, there are also some drawbacks, including:
- Certain types of trusts can be complex requiring additional attention and action on the individual’s part.
- If not properly funded into the trust, other assets can still be subject to probate.
- Some activities can be more complicated when a house is titled to a trust, such as refinancing or taking out a second mortgage.
- The owner will have to change the deed and other official documents related to their home to reflect that the trust owns it.
Other Ways To Transfer Your House to Your Children
Transferring your house to a trust is only one way to leave your house to your children. There are several other options individuals may want to consider before making their decision. Because there are many options on how you could transfer your property to your children, you may want legal assistance in determining the right option for you. Harrison Law, PLLC can help.
Please remember that unless the property is large, has been in the family for generations, or has some other non-monetary value to a specific beneficiary, we usually will not recommend that it be transferred to a specific beneficiary. Instead, we would recommend that the property be addressed in the trust, sold, and the equity utilized to directly benefit the children or other family members. Providing real property to a beneficiary involves responsibilities that this individual may not want to be burdened with.
Gifting the House to Your Children
Parents might consider gifting their house directly to their children. This is a simple way to go about giving away property. The homeowner can complete a deed, naming their children as the new owners of the property. Parents will not have to wait until their passing to complete this transaction. Therefore, they will know that their children receive the property during their lifetime.
Gifting the house does have disadvantages. Giving the house to the children could subject them to significant capital gains tax if they decide to sell it and it has appreciated in value since the parent purchased the property. Additionally, gifting the house to their children now gives them an immediate ownership interest. They could decide to sell the property or evict the parent, and the parent would have little recourse.
Adding Your Children’s Names to the Deed
Another option is to add the children’s names to the deeds while still maintaining ownership of the property. Adding the children’s names to the deed could be a simple way to get help with legal issues related to the property, such as allowing them to pay taxes or authorize repairs. The homeowner could also still maintain co-ownership of the property.
For parents who have to worry about long-term care or even receiving care in the home, the Medicaid lookback period can apply, according to the American Council on Aging. This rule considers any transfer of assets within five years leading up to the Medicaid application. If the parent transfers their property, or even a portion of its value by adding a new co-owner, and then needs long-term care, they may be denied Medicaid benefits until they exhaust their penalty period. Additionally, if parents name their children on the deed now, the children may have the right to sell or encumber the property, depending on how the parents title the property.
Leaving the Property to Your Children in Your Will
Another option some people may consider is leaving property to their children in their Last Will and Testament (will). Leaving the property to their children in their will allows the parent to make their wishes clear in a written instrument. Homeowners do not have to worry about giving away any present property rights.
The major drawback of leaving the property to their children in their will is that it means that the estate will have to go through probate before the property can be transferred to them. This can be a more expensive and time-consuming process than some other options.
Using a Beneficiary Deed
Arizona §33-405 allows using a beneficiary deed to transfer a future interest in a property. A beneficiary deed allows the homeowner to name the person or persons they want to inherit the property after their passing. The homeowner records the deed now, and the property transfers after their passing without probate or other paperwork. Beneficiary deeds can also be utilized to transfer the property to the trust at the time of the surviving spouse’s death. They also do not transfer any immediate ownership interest. Additionally, while a trust allows the parent to set conditions for the use of their property, a deed also does not offer as much flexibility.
Contact an Estate Planning Lawyer for Legal Advice and Guidance
If you are thinking about putting your house in a trust but are not sure if that is a good idea, consider reaching out to a knowledgeable estate planning lawyer from Harrison Law, PLLC. They may be able to assist you by evaluating your particular situation, listening to your goals, and giving you advice about the options to achieve them. You can reach them by calling (480) 320-2310.
© 2024 Matthew W. Harrison and Harrison Law, PLLC All Rights Reserved
This website and article have been prepared by Harrison Law, PLLC for informational purposes only and does not, and is not intended to, constitute legal or financial advice. The information is not provided in the course of an attorney-client relationship and is not intended to substitute for legal advice from an attorney licensed in your jurisdiction.
