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How to Pass Your Home to Your Children Tax-Free

Posted by Brad Sarkauskas | Apr 28, 2018 | 0 Comments

In many families, it's customary to pass on the family home to surviving children after the parents' death. You may be considering how to give your child or children your home without the sting of taxes later. It is possible, and there are a few ways to accomplish it, but it takes some advanced planning to make sure everything happens in a way that provides the most benefits to your family.  

You may be concerned about Medicaid “taking your house” or spending down your assets to receive Medicaid benefits. “Estate recovery” occurs after your death, when the state goes through your assets to recover costs of your long-term nursing home care while you were alive. Since a house is often the only major asset many individuals have, frequently, the home is sold and the funds are used to repay Medicare; however, you can protect your home from a Medicaid estate recovery and sale.

Writing Your House into Your Will

One way to pass a home to your child or children is to make a will and designate a beneficiary for your home in your newly created will.

Although estate recovery issues need to be considered using this method, taxes can generally be reduced or eliminated as individuals receiving property upon the death of another are entitled to an adjustment in the cost basis (a step-up) when there are built in gains.

How to Gift Your House 

Gifting the family house to children has consequences that are often unforeseen by families looking to safeguard their assets. Making such a transfer puts you in a difficult position if your children go through divorce, bankruptcy, incur liability due to a lawsuit, or other financial problem occur that may require re-selling the house.

If you're planning to move out of the house now, you can give the property to your child, however attorneys generally have better techniques than making such a transfer. For help passing on your family home, contact a Wisconsin estate planning attorney.

How to Gift Your Home with a Life Estate

A Life Estate allows you to transfer part ownership to your children (or anyone else) while you're alive. You can live in it (or rent it out) during your lifetime and, when you die, the remaining ownership passes to your kids (or others to whom the asset was transferred), who may then take full possession and ownership of the assets.

Placing the home in an irrevocable trust with your children as the beneficiaries is another option. Doing so may help you avoid estate taxes, qualify for Medicaid for nursing home or assisted living facility expenses, and protect the house from Medicaid estate recovery. Careful planning is a must as making a transfer to an irrevocable trust may cause an ineligibility period for Medicaid for a period of time after such a transfer of your home. If the house is eventually sold, the proceeds remain in the trust and the proceeds of the sale will be passed to the trust beneficiaries.

How Much is the Gift Tax on Real Estate?

If you gift a piece of real estate to directly to your child or grandchild, it is perceived as a gift by the IRS. You cannot claim a loss, nor is your gift tax deductible. The tax issues belong in the expenditures category rather than as savings. You can gift a maximum of $15,000 in 2018, but gifting more does not necessarily warrant the payment of taxes, however, you will have to file a gift tax return (Form 709) as a formality. Some individual cases vary, but a qualified estate planning attorney has all of the answers to your questions regarding gifting real estate.

Estate Planning Strategies With Heritage Law

Considering how to give your children your house or other assets? Be sure to work out a plan with a knowledgeable estate planning and elder lawyer. Contact elder law attorney Brad Sarkauskas of Heritage Law by calling 414-253-8500 for a free consultation. Our goal is to achieve results that will benefit future generations.

Bradley J. Sarkauskas, Attorney-at-Law

About the Author

Brad Sarkauskas

As the founding member of the Heritage Law Office of Wisconsin, LLC, attorney Brad Sarkauskas is equipped with the tools--through his extensive background in finance--to effectively represent his clients legal economic interests. With over 20 years of experience in finance, insurance, and taxati...


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