Many homeowners transfer ownership of their house to one or more of their adult children, or make a child a co-owner of the home. Is this a good idea? While the transfer can avoid some problems, it often creates others that may be even worse. To determine the best way to leave real estate to your adult children, you need to first review the options and see how they fit with your circumstances.
In Massachusetts, you generally have six choices for transferring your real estate to an adult child:
- Transfer by deed during your lifetime
- Transfer by enhanced life estate deed during your lifetime
- Transfer by deed to joint ownership with right of survivorship
- Transfer by trust to child after your death
- Transfer by will to child after your death
- Transfer by intestate succession after your death
If you transfer all your ownership interests to your child while you are alive, you may be required to pay gift tax, and you also lose all control over the property. In addition, you will be penalized if you want to apply for Medicaid long-term care benefits. If instead you transfer the property using an Enhanced Life Estate Deed, you could potentially avoid many of these problems. The life estate allows you to continue to use the property during your lifetime. However, the property can still be subject to claims by creditors of your child.
When a parent wants to make an adult child a co-owner of the property, it’s necessary to create a new deed with a joint tenancy. Specific language should be included so that the deed includes a right of survivorship, and then when one owner passes away, the other assumes full ownership automatically.
One of the most popular options is to create a revocable trust and put the house into the trust with the adult child as an alternate beneficiary and alternate trustee. If you become incapacitated, your child can manage the property. When you pass away, the property automatically passes to your child without the delays and expense of probate.
The standard option for many families is to create a will leaving the property to the child at the time of death. While this option is simple to execute, the child will need to deal with the lengthy and expensive probate process before taking ownership of the property.
Finally, if you do nothing and have no will, your property will pass to relatives under the Massachusetts laws of intestate succession. Depending on your situation, the property could pass to a spouse or be split among children or other relatives.
There are numerous factors to consider with each option, so to make the choice that will provide the most economic benefits without excessive drawbacks or administrative burdens, it is good idea to schedule a consultation with an experienced estate planning attorney who can take the time to review the pros and cons of each option based on your particular goals and circumstances. At Jordan & White, LLC, we work with both real estate and estate planning, and we would be happy to assist. Just reach out.