When And When Not To Put Real Property In Your Children’s Names
A common myth is that when we get older, we should transfer title of our home and other real property to our children. The stated goals of this transfer are to obtain eligibility for Medicaid, avoid estate taxes, and simplify the eventual transfer by avoiding probate. In reality, these goals can usually be met without signing your property deed over to your heirs during your lifetime. In fact, it is seldom in the best interest of you or your family to put property into your children’s names simply as an estate-planning maneuver.
Issues that come up when considering a deed transfer usually include:
- Estate Taxes. Many seniors worry that their heirs will be subject to Federal and State estate taxes and their home can be “taken by the state” after their passing. However, estate taxes don’t apply to most families and their homes in New York. The Federal Estate and Gift Tax exemption for 2022 is approximately $12 million per person, and $24 million for married couples living together. A surviving spouse is entitled to any unused portion of their spouse’s estate tax exemption, meanwhile. The estate tax exemption for New York for 2022 is $6.11 million per person. (However, this exemption is not portable and does not transfer to a surviving spouse when one dies.)
Most homeowners will not meet this threshold and fall safely within estate tax exemptions at both the State and Federal Levels. If you do have a potentially taxable estate, there are other transfer mechanisms such as life estates that keep the title in your name until the event of your passing. Placing the home in a will or trust can also safely transfer the property without the need for transferring title before your passing. Transferring title outright during your life could also subject your heirs to New York gift taxes if the transfer falls within New York’s 3-year “clawback” period for gifts prior to death. Thus, a transfer meant to ease the burden on your heirs could backfire and have unintended consequences for them.
- Medicaid eligibility. Another common myth is that seniors must transfer any ownership in real property in order to obtain eligibility for Medicaid and long-term nursing home care. While all assets, including real estate, are considered during the Medicaid application process, hastily transferring this property in order to apply usually won’t help you gain eligibility. New York has a 5-year Medicaid “lookback period” to ensure no assets were sold or gifted below market value simply to gain Medicaid eligibility. If a violation of this rule occurs, a penalty period can be imposed in which the person remains ineligible for Medicaid coverage.
Seniors hoping to plan for Medicaid eligibility should discuss this and all other options with a New York estate-planning attorney prior to gifting or transferring title to any real estate. The consequences of even a well-intentioned transfer can be damaging to the homeowner and their heirs.
- Other practical considerations. Transferring title to an heir means that, technically, they are the homeowners and are responsible for costs associated with home insurance, maintenance, and upkeep. Having their name on the property during your lifetime also subjects the home to potential liens from your children’s creditors – even potential foreclosure and judicial sales. This could turn a good deed into a nightmare for you and your family.
Further, if you make a personal decision to sell the home but the deed is in a child’s name, the property can’t sell without their approval. Even if it does, your children could be subject to capital gains taxes if the home is not their primary residence.
For the reasons above and many others, it is wise to consider other options when planning the succession of your property to your heirs. Rarely is it a wise and prudent move to simply transfer title to your children before your passing. Trusts, life estates, and other estate-planning tools present better options.
Our Bronx and New Rochelle Real Estate Attorneys Can Help You Discuss Real Estate Transfers as Part of an Overall Estate Plan
When considering how you want your real estate to be transferred to potential heirs, you want to carefully consider your goals and how to meet them. An experienced Bronx and New Rochelle real estate attorney can help you through that process, and answer any questions you may have. Contact us today for help.