I am deeding my house to my children and reserving a life estate. House is worth $400,000 but I only paid $50,000.

Asked 11 months ago - Brooklyn, NY

I am definitely up there in the years. My children are afraid that I will do something silly like marry my (younger) girlfriend and they'll lose their interest in the house. Honestly, I do not think I will ever remarry but don't mind doing the transfer now if it makes them feel better. I have otherwise provided for my girlfriend financially in my will. Do I have to pay taxes on this gift? Is there any reason why I should wait and let them inherit after I die (my will says they each share equally anyway).

Attorney answers (5)

  1. Joseph Jonathan Brophy

    Contributor Level 20

    13

    Lawyers agree

    Answered . There are upsides and downsides. You want to make your children feel more secure, and that's good. Conveying an interest to your children now may protect the asset from a Meidcaid lien if you run out of money and need long-term care in the future. The problem with conveying a life estate is that if you need to sell the house later, it will be much harder to do so and the money will no longer be available to you. You may wish to consider conveying the house to a trust with your children as the ultimate beneficiaries. You wil have to file gift tax returns either way, but unless your estate is very large, there will probably be no tax payable. You need to sit down with an estate planning attorney and discuss all your options.

    Any opinions stated in response to Avvo questions are based upon the facts stated in the question. Responses to... more
  2. Robert Miller

    Contributor Level 17

    13

    Lawyers agree

    Answered . This is one of my pet peeves and this advice is intended for all of the many elderly parents who I frequently counsel: your children have no interest in the house to lose! It is yours to do with as you wish, as silly as you choose to be, without being pressured or even bullied by relatives who think they are "entitled" to something. Making them "feel better" is, in my opinion, a terrible reason. There are several reasons why you might wait or need to do it differently, and consultation with an experienced probate or estate planning lawyer close to you is strongly recommended. I will be interested in seeing how my colleagues respond.

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    Disclaimer: California attorney Robert Miller has practiced for over 45 years and restricts his practice to real estate and probate matters in the Central District of Los Angeles. Any opinion expressed is for general informational purposes only, no attorney-client relationship is intended or created by this answer, and no action or inaction should be contemplated without first employing and consulting with a competent attorney convenient to the questioner.

  3. Roman Aminov

    Pro

    Contributor Level 13

    9

    Lawyers agree

    Answered . I concur with attorney Brophy in that a trust may accomplish your goals better than a life estate. A properly drafted trust will
    1. Not require you to pay a gift tax
    2. Allow your beneficiaries to take advantage of a stepped up tax basis in the home
    3. Protect your home from your children's creditors, unlike a life estate
    4. Allow you to change beneficiaries
    5. Allow you to replace trustees
    6. Allow you to qualify for Medicaid nursing home care if assets are transferred more than five years before the application.

    In short, there are many factors to consider and should be discussed with an estate planning attorney who knows the full situation.

    Sincerely,

    Roman Aminov, Esq.

    Law Offices of Roman Aminov

    Estate Planning - Elder Law - Probate - Real Estate

    147-17 Union Turnpike | Flushing, New York 11367
    P: 347.766.2685 | F: 347.474.7344

    Roman@AminovLaw.com | www.AminovLaw.com

    This answer does not constitute legal advice and no attorney client relationship has been formed. Before choosing... more
  4. Bruce Givner

    Contributor Level 18

    7

    Lawyers agree

    Answered . You have a lifetime federal exclusion of $5,250,000, so that gift alone will not cause you to owe gift tax. The reason to wait is because their income tax basis will increase to your date of death fair market value. There are non-tax reasons, as wisely explained by one of the other responding lawyers.

  5. Jason W. Stern

    Contributor Level 6

    4

    Lawyers agree

    Answered . Unless you're estate is in excess of $5.3 million dollars, the gift tax is not an issue as long as you meet the gifting requirements. I would however tell your children to be careful what they ask for. What is the bigger estate issue here is the capital gains tax that your children will have to bear on any and all appreciation in the asset from the time it is placed in the life estate to the time your passing. Considering housing prices, especially in Brooklyn are appreciating astronomically, I would say that is the bigger problem.
    An interesting alternative is you could just deed a portion of the house outright to each of your children with rights of survivorship. That way you can marry your young girlfriend, which may not be stupid depending on how you feel about her, and ensure your children's legacy is protected without any heroics.

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