Lisha A. Seery, LLC

Should you give your house to your children while you’re alive?

On Behalf of | Jan 7, 2021 | Estate Planning |

For many parents in Missouri, giving their house to their children after they pass away seems like a natural part of the aging process. If the parents make smart decisions, a house could be a great investment for their beneficiaries whether they choose to live in the house or sell it for a profit. However, it’s important not to gift the house to your children outright. If you do, they might have to deal with a massive tax burden.

Why shouldn’t you gift your house to your children before you die?

When you gift your children a house while you’re still alive, they’ll have to pay taxes on the house’s appreciation value. For example, if you bought your house for $10,000 several decades ago, it could be worth hundreds of thousands of dollars today. Your children won’t have to pay taxes on the appreciation if they inherit the house after your death, but they will have to pay taxes if you gift them the house while you’re still alive. As a result, they might get stuck with a massive tax bill.

Additionally, when you give your children a house, they’ll have to deal with all the other debts, taxes and fees that come with it. They might have to sell the house to pay off the mortgage, which is bad news if you planned to continue living in the house until your death.

During the estate planning process, you can talk to an attorney about the best way to transfer your house to your children. The attorney might recommend putting the house in a trust that allows your children to avoid the probate process. Your children also won’t have to pay appreciation taxes because they won’t technically own the house.

What’s the best option for your situation?

There’s no “one-size-fits-all” option that works for all financial situations. You should talk to an estate law attorney to figure out the best way to transfer a house to your children as well as the rest of your financial assets. Your attorney may help you figure out how to avoid heavy taxes and probate.