If you are planning your estate and are considering gifting your house to a child, you should first consider the consequences of this decision. Whether you have simple estate planning needs or more sophisticated needs, you need to be very careful about handling your home in a will because of complications with taxes and family dynamics. Here is an example of a why gifting a house to a child may not be a good idea. If you designate your home to a child while splitting up assets between other children and for some reason burn through those assets while you are still alive, one child will now have gotten a house and the others have gotten nothing. You should also consider that your child will now be responsible for paying taxes on the home whether they are in a financial position to do so or not.
There is a tool called a qualified personal residence trust that allows you to give away a home but continue to live in it for a set period of time. The only downside to this is that at the end of that 5 or 10 years, you will have to rent your own home from your child at fair market value. This can be a powerful technique if used properly. It's not right for everyone which is why we recommend that you call David M. Frees at 610-933-8069 or email him directly at [email protected] to learn more.