Why You Don’t Gift Your House To Your Kids

July 26, 2023

Avoiding headaches is easier than you think

It is amazing how home ownership seems out of reach for many young people today. Some of our clients ask us if they should just give their house to their children at some point to help them achieve their dream of owning a home. Other clients are afraid of losing their home if they have to enter a nursing home and apply for Medicaid. In this day and age, both fears are well-founded, but transferring the family home to their children is not the best way to protect it or their children from other headaches down the road.

It might be a consideration, for example, if the parents plan to downsize to a new condo or make a former vacation home their full-time residence. However, while such generosity may be admirable, giving a house away is a decision with serious financial consequences for everybody concerned. Before you sign over the homestead to your adult child, consider these factors, which could make you think twice about doing so.

1. You Could Be Giving Your Child a Huge Capital Gains Tax Bill

If you purchased your house a few years or a few decades ago, it has most likely gone up in value. If you gift a home to a child and they sell it, they will be taxed on the gains or appreciation of the property. For instance, if you bought your home for $200,000 and it’s now worth $500,000, your child may be subject to capital gains of $300,000 if/when they sell the property.

Instead of forcing your children to deal with that tax burden, you can instead set up a trust where you are the grantor, and your child is the beneficiary. Under this approach, when your child receives your home upon your death they get a step-up in cost basis, meaning the property they acquired is valued at fair market value and not the original price. This serves to prevent the many years of appreciation.

2. Avoid Crossing Into Medicaid Ineligibility Territory

Typically, you do not have to sell your home in order to qualify for Medicaid coverage of nursing home care, however, the state could file a claim against the house after you die. If you get help from Medicaid to pay for the nursing home, the state must attempt to recoup from your estate whatever benefits it paid for your care. This is called "estate recovery." If you want to protect your home from this recovery, you may be tempted to give it to your children.

Transferring your house to your children (or someone else) may make you ineligible for Medicaid for a period of time. The state Medicaid agency looks at any transfers made within five years of the Medicaid application. If you made a transfer for less than market value within that time period, the state will impose a penalty period during which you will not be eligible for benefits. Depending on the house’s value, the period of Medicaid ineligibility could stretch on for years, and it would not start until the Medicaid applicant is almost completely out of money.

There are circumstances under which you can transfer a home without penalty, however, you should consult a qualified estate planning attorney before making any transfers. You may freely transfer your home to the following individuals without incurring a transfer penalty:

· Your spouse

· A child who is under age 21 or who is blind or disabled

· Into a trust for the sole benefit of a disabled individual under age 65 (even if the trust is for the benefit of the Medicaid applicant, under certain circumstances)

· A sibling who has lived in the home during the year preceding the applicant's institutionalization and who already holds an equity interest in the home

· A "caretaker child," who is defined as a child of the applicant who lived in the house for at least two years prior to the applicant's institutionalization and who during that period provided care that allowed the applicant to avoid a nursing home stay.

3. Losing Control Before You Are Even Gone

It should be noted, by transferring your house to your children, you will no longer own the house, which means you will not have control of it. Your children can do what they want with it. Even the most responsible adult child can run into financial troubles. Your child now owns a portion of the home and if they have children applying to college, run a business, declare bankruptcy or a divorce proceeding these can affect you also. One big surprise you may not have thought of is that if your children are sued or get divorced, the house will be vulnerable to their creditors and when you gift the home to your child or add them to the deed, you may be vulnerable to losing the property while you are still alive.

Discuss Your Options With An Expert

Before making a big decision on what to do with your home, be sure to contact me to discuss your options. As a board-certified estate planning attorney, I can review the best methods for your financial situation and your goals, and if the concerns addressed above resonate with you, then you should strongly consider using a trust to transfer ownership of your house. An important strength to using a trust is that the capital gains taxes do not come into play when your child becomes the beneficiary at the time of your passing. Different types of trusts include living trusts, irrevocable trusts, grantor trusts, and assorted other variations with specific traits and purposes. Contact me today and I will work with you to identify the right trust strategy for you and your family.

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Molding Your Financial Future in 2025

January 17, 2025

As we step into the new year, I find myself reflecting on the countless entrepreneurs, professionals, and business owners I’ve worked with throughout my career. Helping clients mold a shield of protection around their assets has been one of the most rewarding aspects of my practice. Time and time again, I’ve witnessed that success isn’t reserved for geniuses, nor does it require a fancy degree. The secret lies in action, strategy, and discipline—traits anyone can cultivate to achieve and maintain wealth. The Myth of Instant Wealth How often have we heard someone say, “When I win the lottery, I’ll finally be set”? It’s a common refrain, but let’s examine the reality. Imagine winning $10 million in the lottery. After choosing the lump sum option and paying taxes, you might walk away with only a fraction of that—perhaps $2 million. Without a solid financial plan, it’s no surprise that many lottery winners end up broke within a few years. True wealth isn’t about luck or flashy possessions. It’s about what you do with your resources and how you protect them. If you look around your community, the truly wealthy aren’t necessarily the ones with the biggest houses or newest cars. They’re often the ones who’ve taken calculated risks, lived within their means, and built unglamorous but steady businesses. These individuals mold the clay they’re given, creating shields of protection around their assets that ensure their financial stability for generations. The Trap of Looking Rich We’ve all seen it—the big house, luxury car, and designer wardrobe. But appearances can be deceiving. Many who look wealthy are drowning in debt, spending more than they earn, and chasing the illusion of success. As my wife lovingly calls it, Dickersonism #7: “Looking rich does not MAKE you rich.” True wealth is built on a foundation of solid, income-generating assets, not consumables. Falling into the trap of “keeping up with the Joneses” (or Kardashians) often leads to financial instability and missed opportunities to create lasting wealth. The Cost of Inaction One of the greatest obstacles to wealth and protection is inaction. Henry Ford famously said, “If you think you can, you can. If you think you can’t, you can’t. Either way, you’re right.” Inaction is the path of least resistance, but it’s also the path to missed opportunities and unfulfilled potential. Some hesitate out of fear or over-analysis, a condition I call “analysis paralysis.” It’s easy to get caught up in what could go wrong, but this mindset keeps you stagnant. Every successful person I’ve worked with has one thing in common: they took action. They understood the risks but focused on the rewards, moving forward despite uncertainty. Setting Your Course for 2025 If you haven’t taken steps to mold your financial future, now is the time. Ask yourself: Where do you want to be a year from now? In five years? In ten? Define your goals and begin building the path to reach them. Just as importantly, protect what you’ve built. Not having a plan to shield your assets is like running exposed electrical wiring—sooner or later, you’ll face unnecessary risks. A board-certified estate planning attorney can help you design a plan to safeguard your wealth, ensuring it stays secure for you and your loved ones. Take Control of Your Future Success doesn’t just happen—it’s molded. Listen to trusted advisors, but remember that the final decisions are yours to make. Clarify your vision, take bold steps, and build the life you’ve always dreamed of. At The J.M. Dickerson Law Firm, we’re here to guide you every step of the way. Whether in person, by appointment, or via Zoom, we’re committed to helping you create a legacy of success and security. Contact us today, we can help! South Texas: 956-791-5422 Central Texas: 830-302-4577 Let’s make 2025 your year of action, growth, and protection.

Embracing the Holidays as a Time for Estate Planning

December 20, 2024

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Start the New Year Strong: Four Steps to Success

December 13, 2024

As the end of the year approaches, it’s easy to feel the weight of unfinished tasks and the hustle of the holiday season. Between wrapping up work projects, preparing for family gatherings, and making plans for the future, this time of year can feel overwhelming. But amidst the busyness lies a valuable opportunity—the chance to press reset and prepare for a fresh start. The New Year offers a clean slate, making it the perfect time to reflect, reorganize, and refocus your goals. By dedicating some time to the right activities now, you can set yourself up for success in the months ahead. Here are four key steps to help you start the New Year on solid footing. Step 1: Reflect on the Past Year As the calendar flips to a new year, many of us naturally find ourselves looking back at the previous 12 months. This is the perfect moment to assess your professional and personal accomplishments, challenges, and growth. Ask yourself: • What were my biggest successes this year? • What goals did I miss, and why? • What strategies or habits worked well for me? • Where can I improve moving forward? Reflection isn’t just about identifying wins and losses; it’s about understanding the “why” behind them. Seek feedback from colleagues, mentors, or trusted peers to gain new perspectives. The more honest and thorough your evaluation, the more valuable it will be as a foundation for future planning. Step 2: Create a Game Plan for the Year Ahead Reflection is only the beginning. To make real progress, you need a clear and actionable plan for the year ahead. Start by defining your big-picture goal for the next 12 months. What’s the most important outcome you want to achieve? Once you have that, break it down into smaller, measurable objectives. For example, if your goal is to expand your business, your smaller objectives might include increasing marketing efforts, attending networking events, or launching a new service. Outline the steps needed to achieve each objective and set realistic timelines for completion. Revisit your goals regularly—at least quarterly—to ensure you’re staying on track or to adjust for any changes in your circumstances. Flexibility is key to maintaining momentum throughout the year. Step 3: Declutter Your Inbox An overflowing email inbox can be a constant source of low-grade stress. Ending the year with a streamlined and organized inbox can give you a fresh sense of control as you head into January. Here’s how to tackle it: • Respond immediately to any urgent or unresolved messages. • Delete emails that are no longer relevant. • Unsubscribe from newsletters or mailing lists you no longer find useful. • Create folders and filters to better organize incoming messages moving forward. To keep your inbox manageable, schedule regular cleanups throughout the year. Whether monthly or quarterly, these maintenance sessions will prevent clutter from building up again. Step 4: Knock Out Small Tasks The small, unfinished tasks lingering on your to-do list can be more draining than you realize. Use this time to cross off as many as possible before the New Year begins. • File paperwork that’s been piling up. • Respond to emails you’ve been avoiding. • Wrap up loose ends on ongoing projects. Completing these small but nagging tasks will give you a sense of accomplishment and free up your mental bandwidth for bigger goals in the New Year. Starting January with a clean slate will allow you to hit the ground running. Your Fresh Start A new year is a chance to realign your priorities, set meaningful goals, and approach your work with renewed focus. By reflecting on the past year, setting actionable goals, decluttering your space, and tying up loose ends, you’ll create the foundation for a successful year ahead. Whether you spread these steps out over a few weeks or tackle them all in one day, the most important thing is to commit to the process. A little effort now can make a big difference in how you start the year—and how you finish it. Here’s to making the most of your fresh start!