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Can You Transfer Your House to Your Children to Avoid Inheritance Tax?

Posted by Noah Sarkauskas | Feb 15, 2023 | 0 Comments

As we get older, planning for the future and managing our assets becomes increasingly important. One of the key concerns for many people is how to minimize the amount of inheritance tax their estate will be liable for after they pass away. One idea that often comes up in estate planning is the possibility of transferring your house to your children in order to avoid inheritance tax. In this article, we will explore the legality and implications of this strategy and offer some alternative solutions.

The Truth about Transferring Your House to Your Children

The short answer is that, technically, it is possible to transfer your house to your children in order to avoid inheritance tax. However, this approach is not without its risks and complications. Here are a few things to consider:

1. Gift Tax

When you transfer ownership of a property to someone else, it is considered a gift, and you may be subject to gift tax. In Wisconsin, the annual gift tax exclusion amount for 2023 is $17,000 per individual. If the value of the house you are transferring exceeds this amount, you will be required to pay gift tax on the difference.

2. Capital Gains Tax

When you transfer your house to your children, the house's cost basis is reset to the current fair market value. If your children then sell the house, they will be subject to capital gains tax on any increase in value since the date of the transfer. This could result in a significant tax liability for your children.

3. Medicaid Eligibility

Transferring your house to your children could also have implications for your eligibility for Medicaid. If you require long-term care in the future, Medicaid may require you to use your assets to pay for your care before you can qualify for coverage. If you have transferred your house to your children, it may be considered a gift that would impact your eligibility.

4. Loss of Control

Transferring your house to your children means you are no longer the legal owner of the property. Your children would have full control over the property, and you would have no legal right to live in or use the property. If your relationship with your children becomes strained, this could create problems down the road.

A Better Solution: Revocable Living Trust

If you are looking for a way to minimize the amount of inheritance tax your estate will be liable for after you pass away, a revocable living trust could be a better solution. A revocable living trust is a legal entity that you create and can change or dissolve at any time during your lifetime. When you transfer ownership of your assets, including your house, to the trust, you maintain control of the property, but the trust becomes the legal owner. This means that when you pass away, your assets can be distributed to your beneficiaries without going through probate, which can save time and money.

In addition, a revocable living trust can help you avoid estate taxes by removing assets from your taxable estate. This can be especially beneficial if you have a large estate that exceeds the federal or state estate tax exemption amount.

Contact an Estate Planning Attorney in Wisconsin

Transferring your house to your children to avoid inheritance tax is a strategy that may seem appealing at first, but it comes with risks and complications that are important to consider. A revocable living trust can be a better solution for estate planning and minimizing estate taxes.

If you are interested in learning more about estate planning, probate, or business law, please contact Heritage Law Office at 414-253-8500 or send us a message. Our experienced attorneys can help you navigate the complex legal landscape and find the best solutions for your unique needs.

About the Author

Noah Sarkauskas

Bringing technology, automation, machine learning, and a systematic approach to the legal world, Noah Sarkauskas is making the legal field significantly more efficient. Noah leverages technology to complete your legal work in a significantly quicker and more time-efficient matter while simultaneo...


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