Many people with concerns over asset protection and long-term care planning place their homes in their children’s names to legally divest themselves of the asset. This may or may not be a good idea for you, depending on your unique financial situation, but you should be aware of what could go wrong if you do. A few of the adverse consequences you and your family could face include:
- Your child’s creditors could come after the house: If one of your children is sued, runs into trouble with debt, gets divorced or is otherwise subject to collection actions, the house you live in will be within reach of their creditors. Life is unpredictable. No matter how responsible and financially sound your children are, a single accident, medical event or job loss could put their assets, which now include your house, in jeopardy.
- They could face unnecessary capital gains taxes: If your child takes ownership of your house today and sells it in twenty years, they may owe steep capital gains taxes on the appreciation. On the other hand, if they inherit it through a trust, for instance, in twenty years, they will take ownership once the value has already appreciated and thereby avoid those taxes.
- Disputes could arise: Once you put your house in your children’s name, it is no longer yours. If at any time your child decides to sell the house or take some other significant action despite your objections, there is nothing you can do about it.
Transferring ownership of a house is a complex legal matter that should not be entered into lightly. It may be the best course of action in your specific circumstances, or it may be a financial mistake. Always consult with an experienced estate planning lawyer you can trust before making any important decisions.