How to Give a House Away
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At Phelps Law, we’ve been doing top-notch estate planning for several generations. Part of that is planning for asset protection. Another part is helping you to understand financial advantages when it comes to leaving an inheritance. One big inheritance question that we’re asked has to do with how to give a house away to your children while you are still living. In this two-part series, we will present some guidelines to help you navigate potentially choppy family waters.
Why give it away now?
There are many reasons for gifting your house to your children before you pass away. There are potential tax advantages for both you and your heirs. You are reducing the size of your estate, which means a tax break for you on property taxes. Your heirs will also receive a tax advantage because of a smaller value on a taxable estate. In many cases, the annual gift tax exclusion will apply as you reduce the size of your estate through gifting your house.
Gifting while maintaining control
With a trust, can I give my house away and still have control over it? This might be a question for those who want to continue to live in the house while still gifting it to their children for the tax advantages listed above. And the answer is yes. For instance, by using a Qualified Personal Residence Trust (QPRT), you can transfer an interest in the property to a trust for your children. You are still the trust administrator, so you continue to make all the decisions concerning the property. There is a term associated with a QPRT, and either you or your children must occupy the house while the term is in effect. When the term expires, you can rent the property from the trust if you want to continue living there. In this case, the rent is not counted as a gift to the trust or the heirs, so it can help to reduce the value of your estate.
All for one, or one for all?
Another big question is, How do I divide a gifted house among several children? The first step is to find out if any of the children want to live in the house. It’s not uncommon that adult children will have established homes of their own and may not want to relocate. Is there one child who really does want to live in the house? Perhaps the school district is better, or the neighborhood better fits their lifestyle. Another scenario is that several children would like to live in the house. Can they share the burdens and responsibilities that come with it? They may have different life goals or financial plans that would make sharing a nightmare. If one child ends up with the house, make sure that the other children are provided for in other, equal ways. You don’t want to start a family feud!
Understanding how to give a house away effectively requires wisdom. In Part 2, we will look at some potential pitfalls related to gifting your house. The process can be a complex undertaking, because you want to make sure you and your spouse are taken care of, as well as your beneficiaries. Phelps Law is here to help you, since we have successfully helped hundreds of families with estate planning. Give us a call to discuss the best options available to you. We’ll sit down with you, look at your financial portfolio, and assess your needs. From there, together with you, we’ll forge the right plan for you and your family. Your first consultation is absolutely free!