Clients often ask me if they should transfer their house to their children. Depending on the client’s goal is whether they should transfer the house and to whom they should transfer the house. However, rarely do I recommend they transfer the house outright to their children during the client’s lifetime.
If a goal is to avoid the probate process upon death, the client can execute and record a “transfer on death” affidavit for their house. Upon the client’s death, the house will transfer to the beneficiary named in the affidavit and will not need to be “probated.” If there is just one beneficiary, this is an ideal procedure for avoiding probate.
If a goal is to protect the house in the event the client needs long term care (assisted living or nursing home), then I often recommend transferring the house during the client’s lifetime. However, I do not recommend transferring the house outright to a child. Instead, I recommend transferring the house to a trust with a child named as Trustee and/or beneficiary of the trust. If a client transfers the house to a child, that house becomes susceptible to the child’s issues. For example, if the child gets in an accident and gets sued, the house is then susceptible to the child’s lawsuit. If the house is transferred to a child and that child dies, the house transfers in accordance with the child’s estate plan (possibly to the child’s surviving spouse). Furthermore, if the child needs to apply for any needs-based benefits (even completing a FAFSA form for financial aid for college), the house is counted as the child’s asset in determining whether that child qualifies for any benefits/aid.
There are definitely reasons to transfer a house to a child. However, rarely should a client transfer the house outright to the child during the client’s lifetime. Clients should determine their goal for what they want done with their house and then obtain advice regarding what is the best method for obtaining that goal based on that client’s individual circumstances.
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