By Linda T. Cammuso, Esquire
Clients frequently ask, “Why can’t I just put my house in my children’s names?” It seems simple — and cheap — enough: protect assets, avoid probate, all just for the price of a deed and a recording fee. But as the old saying goes, “If something seems too good to be true, it probably is.”
In today’s economy, everyone is looking to cut corners. Legal services are no exception.
The following are just a few reasons why putting your home in your child’s name might be a leap from frying pan to fire:
•Creditors — Suppose that your child gets into an accident or becomes the target of a lawsuit. Your home in your child’s name (even though you live there) is now an asset of your child’s. Does that creditor, who is looking to get paid, really care if you lose your home to your child’s debt or judgment?
•Premature death — everyone hopes and expects their children will outlive them. But if your child predeceases you, your home will be an asset of your child’s estate, and will now belong to his or her heirs. As much as you might love your child’s spouse or children, did you really plan on them being your landlord?
•Divorce — The sad fact is that most parents will see at least one child go through a divorce. If your house is in your child’s name, it is considered a “marital asset” of your child’s (even if your child’s spouse is not on the deed), and would be included in the divorce proceedings.
•Financial Aid — If your grandchild is going to college and applying for financial aid, many schools count real estate equity as an asset of the parent’s. Your house could cause your grandchild to receive less financial aid by increasing the amount your child is required to pay.
•Taxes — Giving your home to your child during your life could result in significant capital gains taxes upon the sale of the home (even if it was sold during your life) that could otherwise be avoided with proper planning.
Some might think that a “life estate,” which is a retained right to live in the home for the rest of your life, is the solution. But a life estate only lets you stay in the house; it can’t prevent those things from happening to the house as an asset of your child’s. And, with a life estate, you can’t change your mind after the fact, even if the unexpected happens.
The use of a trust for your home can reduce or even eliminate the above risks. Your home is simply too precious to put at risk just to save a few dollars. Proper planning always pays off in the end. You owe it to your family — and most importantly, to yourself.
As elder law attorneys specializing in estate planning for long-term care, we work with clients to protect assets from nursing home stays or other long-term care situations.
Linda T. Cammuso is a founding partner at Estate Preservation Law Offices and an estate planning professional with extensive experience in elder law and long-term care planning. She may be reached at www.estatepreservationlaw.com or by calling 508-751-5010.