Comment: We are in our 80’s and would like to pass ownership of some homes to our children. How should we do this in a tax-efficient way?

We are a couple in our 80’s who have been retired since 1996. We have two children who live in our two houses. We want to know when we can start transferring tax-advantaged ownership rights to children.

thank you.


Dear Parents:

You are generous to your children, but since the houses are already in use, what is the rush to name titles after them?

Your focus on their taxes seems like a good reason, but what’s in your best interest as a couple? Your financial situation, property and family relationships hold the key.

What matters is the value of your total assets, then your federal and state estate tax status and how your will and trust, if you have one, is written. Then there are Medicaid eligibility rules as well as gift and inheritance tax issues.

While I don’t know all the details of your finances and your living situation, I can only give you a broad overview of things to consider. I urge you to consult your accountant, attorney or other advisor.

It is very important to talk to your children. You want to be clear about what you’re giving and why. Above all, explain the big picture and the outcome as a legacy. More than 80% of parents are not open with their families about their money, according to a study.

Without clarity and understanding, your adult children may become confused, expect a large inheritance, or worry unnecessarily about you and your spouse.

What to consider

Think for yourself before you act. Assess whether you have enough to take care of the two of you for the rest of your life.

According to life expectancy tables, an average 80-year-old person can live another seven to nine years. But that doesn’t take into account lifestyle, health issues and quality of life. Most financial planners are making financial projections up to age 95 or 100, which I understand is the longer people live.

Your gift may affect eligibility for Medicaid. Almost all states have a 60-month lookback period, although in some states it is shorter. This is to ensure you don’t give away assets or sell them below market value to qualify for everything from free or reduced home care to nursing-home payments. Before making a title change, understand your state’s laws.

Find out how much extra home care, assisted living or nursing facilities cost, even if it’s not covered by Medicaid. Keeping the homes can provide you with additional resources to pay for that care if needed in the future.

On the communication side, consider these questions:

  • What is your goal with your children? To help them financially? Make them independent?

  • If you have one, how will this affect your other children? Or does it affect every child if these homes are not equally valuable?

  • How would you feel if one or both of you sold your home before you died?

  • What other financial gifts are you giving your children?

Financial decisions affect family relationships. Remember that your adult child can do anything once the property is named after them. Think about how watching their decision affects you.

It is important to communicate your expectations. I saw a young couple selling a house that my client had given them. The couple then bought a large house and asked their parents to contribute money to improve this new property. This made the parents frustrated and unable to refuse. However, the young people could not manage the additional costs of a large house and were burdened with debt. His parents were filled with frustration.

How to transfer property

If your goal is to save your children tax money, the best course of action is to wait until you die and let them inherit the houses. You buy the title when you die, instead of making a gift now, so the cost basis starts at the cost of the home when you buy it. This is important for calculating capital gains when selling.

Under today’s rules — which adjust for inflation and are sometimes reduced by law — you can transfer $12.06 million ($24.12 million for a married couple) free of federal estate taxes.

Read: The IRS has made it easier for families to transfer millions of dollars to their children and others

The value of the home “steps up” at death and becomes the basis for calculating any capital gains tax (the “value basis” for the IRS) when you sell it.

Read: Here’s how to save money on capital gains tax when you sell your home

Even if your estate is well below the federal tax-free limits, your estate and gift may be subject to state taxes. Eleven states have estate taxes, and they start at $1 million. Five inheritance tax.

If you want to gift the houses in one lump sum before you die, it can still be gifted tax-free, but you must file an IRS Form 709 for the tax year to transfer ownership. The amount you give will be deducted tax-free for the estate tax limit when you die.

Remember that this form is required whenever you gift more than $16,000 (2022 limit) to one person in a year.

There are many ways to transfer a topic at once. There are real estate trust options that ensure the transfer upon your death. For example, by setting up a revocable trust for your child’s benefit and setting aside certain assets, you can guarantee that you will have access to the property you live in. It also gives you control over the property if you need to sell it. Take out a loan or rent to cover medical care as you age.

In another example, some parents transfer titles over time. As a couple, you can transfer up to $32,000 a year for each child ($16,000 each), or $64,000 if you make the same gift to a partner or spouse. Again, these are 2022 restrictions.

This approach gives you more flexibility for your estate planning overall. You can do this with any property, and your decision doesn’t have to be all or nothing.

In order to transfer title to a home over time, the title must change every time you make a gift and it must be registered with the state records keepers where the property is located. Please seek legal advice to ensure this is done correctly.

Finally, be sure to consult your attorney about the impact on your estate and any necessary changes to your will and other documents. Check with your accountant to make sure you’re in compliance with tax laws.

Then make the best decision for both of you.

Sid Moriarty is a certified financial planner, MarketWatch columnist, and personal finance speaker. She blogs at MoneyPeace.

Find out how they can shake up your financial career at MarketWatch’s Best New Ideas in Money Festival on September 21st and September 22nd in New York. Join Carrie Schwab, President of the Charles Schwab Foundation.

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