The Simplest is Not Always the Best

10/28/2010

Clients often ask – “can’t I just give my property to my child?” Or “my dad wants us kids to inherit her house, isn’t the easiest way to do that is just to put ownership in our joint names?" Older clients sometimes say "I put my bank account in my son’s name since he is going to be paying my bills for me, that’s okay, right?” 

In many cases, it’s not okay.

One of the things you need to be aware of when you are transferring property is that there may be ramifications beyond just making a nice gift or helping out a child:

  • If you give property to a child, it could be at risk if that child is sued or files for bankruptcy.
  • If you put money in your child’s name that they plan to hold on to for your future use, this could count against them if they need to apply for financial aid for their children or for themselves.
  • There could be gift tax consequences from transferring ownership of property to children.
  • If you pass a remainder interest in your home to a child, you will not be entitled to the full proceeds from the sale if the home is sold during your lifetime - you will only be entitled to the share of the proceeds that are allocated to the life estate, and your children will be entitled to the proceeds that are based on the value of the remainder interest. 
  • If you give property to your child, either cash or real estate, that property could be at risk if your child goes through a divorce.
  • If you give your property to a child, you may end up needing it for your care and be unable to access it when you need it.
  • If you give estate to a child, there may be negative income tax consequences for them when the property is sold.
  • If you give money or property away and later need to apply for public benefits, you may be ineligible due to your gifting.

What seems like a relatively simple transaction can be riddled with “traps for the unwary” for both the giver and the recipient.  There are many safe and appropriate ways to make transfers of property to your children while insuring that you, your children and your property are protected.  What's right for you - that is, what is best - is not always the simplest.