You must plan ahead if you want to absolutely ensure that your family home is passed down to your children. There are many ways to transfer ownership of property, but many come with confusing and complex tax implications. Working with an estate planning attorney can help make sure that the ownership of your home stays within the family. Schedule an appointment with the experienced San Francisco estate planning attorneys at Von Rock Law by calling (866) 720-0195.
Establish Your Estate Plans
Passing down the family home is often the goal of many parents. After working hard and paying off the house, parents often want to leave something for their children. However, it often takes careful planning to prevent the children from facing heavy tax burdens or dealing with family disagreements. Setting up a comprehensive and individually tailored estate plan can help with these issues, giving parents peace of mind.
Is It Better To Gift or Inherit Property?
Many people wonder whether they should gift the house or allow it to be inherited. Some parents choose to gift their family home to their children. In these cases, the parents will transfer the property with a gift deed in this scenario. However, gifting any type of property to your children has tax implications. According to the Internal Revenue Service, a gift tax applies when a property is transferred from one individual to another without receiving the full market value. The gift recipient must pay all taxes due on the property. The house is taxable even if the parents decide to sell their home to the children at less than market value. Gift taxes apply whether the property was an actual gift or not.
However, inheriting a property does not mean the beneficiary will avoid taxes. Sometimes, that action could subject the house to an estate tax, especially with the transfer of property after death. While that may seem like the children will be burdened with taxes, there are a few scenarios that can help families potentially avoid hefty taxes.
How Does Inheriting a House Affect Taxes?
Some parents may want to transfer ownership of the home to their children while they are still alive. By doing so, there may be a capital gains tax. This tax is the amount owed on the profit of the sale. Individuals can avoid this tax by setting up a revocable trust. According to the Consumer Financial Protection Bureau, this legal document allows someone the authority to make decisions about money or property held in a trust.
With a revocable living trust, the parents can change or update the trust as long as they continue to be in sound mind. Additionally, the parents can maintain control of the property while still alive. Once the person passes away, the revocable trust will become irrevocable, and no further changes can be made. A revocable trust allows parents to name their children as beneficiaries and will enable them to avoid estate taxes. Putting the property in the trust is not reversible. The terms can change, but the property must stay in the trust. Consider visiting with the experienced and dedicated estate planning attorneys at Von Rock Law to determine all of your legal options.
Can I Inherit My Parents’ House While They Are Alive?
One way to inherit a family home while they are alive is to create a revocable trust. These trusts can potentially give parents plenty of flexible options. A revocable trust is more manageable to amend than other types of estate planning documents, such as a Last Will and Testament (will). Additionally, if a parent becomes incapacitated, the revocable trust allows all assets to be managed without any interruptions. Finally, these trusts save loved ones from dealing with probate court.
Parents may want to add their children to the property deed. Some of the ways to allow a child to inherit a home include the following modifications to the property deed:
- Transfer on Death (TOD) allows the parents to maintain control of the home until their death.
- Joint Tenant with Right of Survivorship means that the joint tenant must approve all financial decisions.
- Tenants by the Entireties only applies to those property owners married to each other.
Mortgages Can Complicate Matters
Generally, the family home is already paid, but that is not always the case. If there is a mortgage on the house, it will be passed to the beneficiaries. They may have to repay the home loan, which could burden them financially. Also, some mortgages are not transferable, and the child will have to refinance the loan in their name.
It is also possible to leave the family home to several children. If the parent wants to divide their property in this manner, each beneficiary will have an undivided stake in the house. As a result, they will need to make decisions together regarding the property. In some cases, the other siblings can buy each other’s stake in the property for full ownership. It is important to consider that by making each child a beneficiary, the shared property will not create a rift between them.
Consider Visiting With a Compassionate and Experienced California Estate Planning Lawyer
Planning for your end of life is not easy, but it is a necessary step to ensure things are less complicated for your children. If you want to ensure the family home is passed down according to your wishes, an estate planning attorney can help you understand all of your legal options. A dedicated and compassionate San Francisco estate planning lawyer can help you understand the consequences of all legal and financial choices you may have. If you want to pass the family home to your children, contact our experienced estate planning attorneys at Von Rock Law. You can schedule an appointment by calling (866) 720-0195.