17 Reasons Why You Shouldn’t Give Your Home to Your Kids When You Die

Making various decisions for when the time of your passing comes can be a significant step in any parent’s life. One of the main things on that list is deciding the future of your home. As an act of love, many people decide to leave their homes for their children. This may not always be the best thing to do. These 17 reasons explain why.

Tax Implications

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Anyone who has ever dealt with tax burdens knows the hefty implications attached to the transfer of properties. Your children may face capital gains tax (CGT) when they sell your property. Higher tax bills may be faced during the time of sale due to the value of the property going up.

Medicaid Eligibility

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At the time you transfer your property to your children, there is a risk of your Medicaid being affected. This is because it has a look-back period, mentioned by the American Council on Aging, where there is an ‘asset resource limit’. In some cases, when you transfer your assets to your children to be eligible for this limit, it could lead to penalties.

Loss of Control

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Once you give your home to your kids, you are no longer in control of your property. In some cases, children will either rent it out, renovate it, or sell it against your wishes, leaving you in a fix. You cannot predict what will happen unless you have a legal document that entails that none of these things will happen while you are still alive.

Financial Risks for Your Children

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For your children, as much as it may be from the goodness of your heart, leaving them your home can be a financial burden. They could encounter legal disputes, financial difficulties such as bankruptcy, or even the risk of the property being claimed by creditors if they cannot keep up the payments.

Complications in Blended Families

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If you are part of a blended family and leave your home to your immediate children, it could most likely disinherit any stepchildren, even if unintentional. This could lead to disruptions between family members, and it may be difficult to solve these issues, especially when the legal system gets involved.

Sibling Disputes

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Sibling squabbles, as Finance Buzz reveals, could also be one of the most common reasons why many people don’t leave their homes to their children. Disagreements are very possible in aspects such as selling the home and splitting the money, using it, or maintaining it. This could get ugly and put a strain on many families’s relationships or dynamics.

Market Risks

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In some cases, children could inherit the property when the market is low due to fluctuations in the real estate market. This will inevitably have an impact on the inheritance. Different factors affect the market value of a home, and due to economic fluctuations, the volatility of housing costs always plays a role.

Impact on Your Estate Plan

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If you have not equally balanced out any of your other assets between your children, transferring your home to your children may complicate things, such as your estate plan. These could be assets that include your other bank accounts and other things you want managed when you pass away, complicating things in the long run.

Consideration of Your Child’s Future Plans

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It is always best to discuss important aspects of things like leaving your home to your heirs, especially in the case where your children may not want to live in that home or may have moved elsewhere or have plans to do so. In this case, this becomes either irrelevant to them or makes it less valuable to them.

Real Estate Taxes

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Real estate taxes are another expense your heirs may face if you leave them your home. Depending on where the property is located, they may need to pay absurdly high taxes for the property, leaving them with more of a burden than an investment. As the USA Property Guide states, ‘each state establishes their guidelines’ when it comes to property taxes; especially if they don’t qualify for exemptions.

Legal Hurdles

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It can be a bit of a complex process when it comes to the paperwork and legal matters of transferring property between family members and children. Things such as the possibility of you having to establish a trust or having to do in-depth preparation are all included. This isn’t just time-consuming for you; it can also be costly to hire a legal entity to help you with everything.

Impact on Your Child’s Taxes

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Property transfers or inheritances can also possibly affect their taxes. Your children’s tax situation may be impacted by the property tax reassessment, but this will depend on the state you live in, as they differ from one to the other.

Emotional Attachment vs. Practicality

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In many cases, it’s best to be more logical and practical about the idea of giving your home as an inheritance to your children rather than an emotional decision because it has been the family home for decades. One needs to look at it from all angles, especially if this move is a financial asset or a financial hindrance.

Maintenance and Upkeep Costs

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As exciting as it is to inherit a home and own one, there are many obvious, as well as hidden, costs that many new homeowners aren’t aware of. Business Insider reveals a few of these, which include maintenance costs like repairs and upkeep, insurance, taxes, and more. It may not always be practical for your children to take on these.

Gifting During Your Lifetime

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Some forms of transfer include gifting a home to your children as a ‘Deed of Gift’. However, there are various implications for this. Giving them your home while you are still alive is one thing. However, almost 40% of inheritance tax (IHT) will need to be paid if you pass away within the first three years of making the transfer.

Joint Ownership Complications

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There are some other pitfalls to inheriting a home from parents that you should also know about, and one of them is the complications of joint ownership. If this is the case, it could adversely impact the refinancing or selling ability of the property when it comes time for these.

Future Needs and Longevity

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In some cases, you may be surprised to live past the average life expectancy, so it is crucial to decide if you want to get rid of your assets or keep them so they can provide you with a comfortable life until the time of your passing is inevitable. Using your home value for your care could work a lot better than giving it to your children.

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