Founding Attorney
Is it really the best move to hand over your home before you pass away? That’s a question we hear often, especially from Minnesotans looking to simplify their estate or avoid probate. On the surface, transferring your home to your children during your lifetime might seem like a smart and straightforward way to make things easier later on. But before you sign over the deed, it’s important to understand what that decision really means—for you and your family.
Why Families Consider Transferring Property Early
Many people want to make life easier for their loved ones. That’s often the driving force behind early property transfers.
Here are a few reasons people consider giving their home to their children while they’re still living:
- To avoid probate court, which can be costly and time-consuming
- To reduce the value of their estate for Medicaid (Medical Assistance) planning
- To help their children by passing on a valuable asset sooner
- To have someone help cover property costs like taxes, insurance, or repairs
These motivations come from a good place. But a good intention doesn’t always lead to a good outcome, especially when the legal and financial risks are significant.
Potential Advantages of Gifting Your Home to Your Children
There are some benefits to transferring your home early, and it’s important to acknowledge them:
- Probate avoidance: If the home is no longer in your name, it typically won’t go through probate.
- Medicaid eligibility: If you don’t need long-term care for at least five years after the transfer, the home may be protected from Medicaid’s asset calculations.
- Shared expenses: If your children take partial or full ownership, they may contribute to property expenses.
- Asset protection: In some cases, having the property in someone else’s name could shield it from certain creditors.
Still, these advantages can be outweighed by the risks—some of which people don’t discover until it’s too late.
Major Risks and Drawbacks to Keep in Mind
Before you transfer your home, it’s worth understanding what could go wrong. Some risks have long-lasting effects that can be hard to undo.
- Medicaid penalties: If you transfer your home and need long-term care within five years, you could be penalized and denied coverage. This could leave you without a way to pay for nursing home care unless your children step in.
- Loss of control: Once the home is no longer in your name, you can’t sell or refinance it without your child’s permission. If your relationship changes, so does your access.
- Creditors and divorce: If your child is sued, files for bankruptcy, or goes through a divorce, the home may become part of a legal dispute, and you could be left in the middle of it.
- Unintended inheritance: If your child passes away before you, their share of the home could pass to their heirs or spouse, not necessarily someone you would have chosen.
- Tax consequences:
- Your child may face higher capital gains taxes when they sell the home, since they won’t receive a “stepped-up basis” that applies to inherited property.
- You could lose property tax exemptions or homestead status if the title changes.
- Your child won’t be able to use the IRS’s primary residence exclusion unless they actually live in the home.
It’s a lot to think about—and that’s why we encourage families to weigh all of their options first.
Better Options to Consider
If your goal is to make things simpler for your loved ones, there are often safer ways to do it. We regularly help families explore alternatives like:
- Revocable living trusts: These allow you to keep full control of your home while avoiding probate.
- Transfer-on-death deeds: A straightforward tool that passes your home to a beneficiary when you die, without going through probate.
- Medicaid planning strategies: With the right approach, you may be able to preserve your assets and still qualify for Medicaid when you need it.
These tools can give you peace of mind while keeping the risks to a minimum.
Let’s Talk About What’s Right for You
There’s no one-size-fits-all answer to this question. What works for one family might not be a good fit for another. But if you’re considering transferring your home to your children, don’t go it alone. Let’s talk through your goals and look at the full picture together.
At Unique Estate Law, we’ll help you make a choice that protects both your future and your family’s. Contact us today to schedule a conversation.