Transferring the deed of your house to your children can be a beneficial process for you before your death. It can protect you from Medicare trying to put a lien on your property to collect on end-of-life claims. There are several ways a house can be given to your children.
Quit Claim Deeds
A quit claim deed is when a person says that they are no longer staking any claims to a property and transferring ownership to another person who is then staking claim to the property. This is a simple process. An attorney is hired, and Quit Claim Deeds are filed with the local clerk of courts and property appraiser's office.
There are, however, drawbacks to handing over the property to your children through quit claim deeds. For one, the children are responsible for all taxes, insurance, liens and anything else that comes with the property.
Also, if the child decides to sell the property, he will have to pay a capital gains tax on the difference in the amount between what it was bought for and what it sells for. If you have owned the property for many years and it has doubled or tripled in value, a 30 percent to 40 percent capital gains tax can be taken out on the difference.
Finally, with a quit claim deed, if you are seeking Medicare end-of-life coverage, you will have to wait a minimum of three years before being able to claim benefits.
Joint Ownership
Another option is putting the children on the house as joint owners. Although this does not solve the issues with Medicare, it does relieve the large tax burden that the children will face when or if the property is sold. To add a joint owner, contact your local county clerk's office and fill out the form adding a person to the ownership of the property. They will ask what percentage each person will own.
Once you pass away however, things become more complicated, as whoever is your power of attorney also becomes of the owner of that piece of the property. Your children should be listed as the power of attorney; therefore, they will be able to execute ownership on the property in full when you pass.
Selling the House to Children and Forgiving the Note of Mortgage
The final way a house can be transferred to your children is my selling it at fair market value, and having your children take out a note of mortgage with a minimum monthly payment. At some point, the note can be forgiven.
But be careful with this, as it can get tricky with the Internal Revenue Service. Current IRS rules say that that anyone can give anyone else a gift of up to $12,000 per year, tax-free. Also, if someone gives somebody else a loan with the intent of not paying them back, the loan note is considered a gift and will be taxed.
Consulting a financial planning expert before attempting this step is the best way to go. Also, all fees associated with the buying and selling of a home will be applicable.
Tags: your children, capital gains, claim deed, Claim Deeds, ownership property, power attorney
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