Why You Need to Reconsider Before Giving Away Your Home to Your Kids

Spread the love

Sometimes, parents would want to pass their kids the rights to their home before they pass away. This is even if they still plan on living in their house. But then, doing this can lead to some complications.

It may seem like a generous move to give your home to your kids as early as possible. But in reality, you and your adult child may suffer from serious financial consequences for transferring the homeownership early on. Here’s why you need to reconsider before giving your home to your adult child.

You’re Transferring the Legal Ownership of the House

When you give your child the rights to your home, then you will no longer be the legal owner of the property. You may be very well aware of this, but remember that they can legally evict you out of the property for whatever reason they may have. They may suddenly decide to sell or rent the house for profit. They may want to do deep cleaning and improve the home according to their tastes. Even if they do upgrades or renovations, you will no longer have any say in this if you already gave away your rights.

Some parents would sign their rights to their home prematurely thinking their retirement funds would be enough to cover for their senior years. But did you know that according to the National Council on Aging, 21 million seniors are economically insecure? This means they are currently struggling with debt, rising prices of commodities, and even depleted savings. If you still own your home, you will have an asset you can use in case you get into future financial troubles.

Your Mortgage Can Stop You from Transferring Homeownership

Are you still paying for the mortgage? If yes, then you will need to check if your child can manage your monthly mortgage. It is important to know that there are two types of mortgage. One is transferrable while the other is not.

If your mortgage is transferrable, then you don’t need to worry about paying for appraisal fees and legal costs. You can transfer the mortgage to your adult child and he can then assume paying for your remaining mortgage terms. But if your mortgage is non-transferable, your child may need to refinance the mortgage. If they fail to pass the requirements, then transferring the mortgage may be impossible to execute.

You and Your Child Can End up with Big Taxes

Some parents would give their homes to their kids thinking they can save their kids from the hassle and expensive tax bills. But in reality, your child can end up with bigger tax bills to pay.

Your child will have to pay capital tax gains when they sell the property if the value of your real estate increases. It becomes a different story if the property you wish to transfer is a holiday or second home. You will be the one to pay for the capital gains for the increase in value up to the time you give the property away.

There Are Other Ways to Give Your Home to Your Child

Family with new home

There are other ways you can transfer the ownership of your home to your child. For one, you can you’re your property into a trust. This way, you technically still have the rights to the home and have the ability to change your mind until the time you pass away. You can protect your property from some creditors, save on estate taxes, and avoid probate.

Transfer-on-Death deed, on the other hand, allows you to automatically receive your home after your untimely passing. You can change your beneficiaries if in case your first choice is not around or refuses to receive your property. It is important to remember that your beneficiary will also inherit any responsibilities you may have in the house, including any active lien or mortgage.

Some parents chose to sell their homes to their kids instead. But remember that you can only sell the house at fair market value. This is since selling your home to your child at a bargain sale can lead to costly tax implications. If your kids can’t afford to buy your home at fair market value, you can choose to legally loan them money instead.

You can also opt for a life estate where you form joint real estate ownership with your kids. This way, your kids can only take full ownership after your death. This means they can only rent, sell, or change the home to their liking after your passing.

Giving your kids your home can be a tricky process. If you and your child can afford to pay for the possible expensive taxes, then you can go ahead and go on with the transfer. But if not, then you can consider the other ways you can legally transfer ownership minus the heavy taxes. Check your current financial situation and to talk to your child first before making a decision.

Scroll to Top