Transferring ownership of property from parent to child can have tax implications. Here’s what you need to know when making your estate plan.
Having assets to leave behind to your children when you are gone is one of the greatest feelings. Your home, where you likely made many lasting memories with those you love most, has been one of your most valuable investments before and during retirement, so knowing it will be left in good hands will give you peace of mind.
However, there are a few things to consider when it comes to including your property in your will. Transferring title to real estate can have a lot of perks during the lifetime of the owner, but it also comes with some potential implications you should consider before signing the deed over. Here’s what you need to know when gifting your home to your children in your estate plan.
Gifting Real Estate to Children: What You Should Know
There are several different types of taxes you and your heirs should be familiar with when it comes to inheriting real estate. Here is a brief overview:
- Capital gains tax – the levy on profit that your children make should they sell the inherited property
- Estate tax (or death tax) – taxes levied on the transfer or property at death
- Inheritance tax – a levy on assets inherited from a deceased person
- Gift tax – a tax on the transfer of property by one individual to another while receiving nothing, or less than full value, in return
- State and federal estate tax – an additional tax on property including cash, real estate, stock, and other assets transferred from deceased persons to their heirs
Similarly to state estate tax, both federal and state estate tax are assessed on the estate’s fair market value (FMV), rather than what the deceased originally paid. With these taxes in mind, here are four ways to gift your home to your children in your estate plan.
How to Gift Your Home to Your Children in Your Estate Plan
- Sell your home to your children. Many parents opt for selling their property to children, but fair warning: the home must be sold at fair market value. If you try to sell your home to your children for a bargain, this could be considered a gift and you may incur tax implications.
- Gift your home to your children. If you want to give your home to your children during your lifetime, an irrevocable trust might be your best bet. The pros: Your home will be protected in the event your children’s creditors come knocking. The cons: The property could be foreclosed and taken from the family in the future if the child gets into financial trouble.
- Bequeath your home to your children. Bequeathing property means giving personal property via a will, where personal property owned by the decedent (or the deceased) at the time of death is disposed of as a gift. Bequeathing has typically been used to give personal property. When going this route, it is recommended to do so through a revocable living trust where you can name your children as successor trustees for continuity of property management. As an added safeguard, you will be able to make changes should circumstances or decisions change along the way.
- Transfer the deed to your children. Virginia is one of 25 states that allow property owners to sign a Transfer-on-Death deed. This can be used to avoid probate on the property. This can be one of the easiest and most cost-effective ways to ensure you have full oversight over who inherits your property.
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- Can I Gift My Real Estate Property to My Child as Part of My Estate Planning?
Yes, you can include your real estate property as part of your estate planning by gifting it to your child. However, it’s crucial to be aware of potential tax implications and legal considerations.
- What’s the Best Way to Gift a House to My Child While Avoiding Tax Implications?
The best way to gift a house to your child while minimizing tax consequences often depends on your specific circumstances. Some options include selling the property at fair market value, using an irrevocable trust, or utilizing Transfer-on-Death deeds. Consulting with a legal or financial advisor is advisable to determine the most suitable approach.
- Is It Possible to Give My Home to My Child as an Asset Transfer in My Estate Plan?
Yes, it’s possible to transfer your home as an asset to your child as part of your estate plan. This can be done through various methods, such as gifting, bequeathing, or using Transfer-on-Death deeds. Each method has its advantages and considerations, so it’s important to choose the one that aligns with your goals and circumstances.
- How Can I Ensure That My Children Inherit My Property Without Going Through Probate?
To ensure that your children inherit your property without going through probate, you can explore options like the Transfer-on-Death deed, which allows the property to pass directly to your beneficiaries upon your passing. This can be a relatively straightforward and cost-effective way to avoid probate for real estate assets.
- What Are the Key Considerations When Gifting Real Estate to Family Members?
When gifting real estate to family members, several key considerations come into play. These include the fair market value of the property, potential tax implications (such as gift tax), the financial stability of the recipients, and the use of legal tools like trusts to protect the property’s ownership. Consulting with professionals well-versed in estate planning and real estate law like Assurest can help you navigate these considerations effectively.
Disclaimer: This material is intended for general information purposes only and does not constitute legal advice. Responses to inquiries, whether by email, telephone, or other means, do not constitute legal advice, nor do they create or imply the existence of an attorney-client relationship.