Pitfalls of Deeding Home to Avoid Probate
We understand that the loss of a loved one can be overwhelming. Here at Peters Patchin & Monaghan, we strive to help steer you through these difficult times. With our extensive experience handling probate matters, we always look for the most efficient and affordable path available. Our partners, Daniel Patchin and Ben Monaghan, are committed to answering all of your questions along the way as you work through these confusing times.
It is not uncommon for us to be asked by parents about the wisdom of deeding their home to their children as a means of avoiding probate. Unfortunately, that approach has serious risks including these:
Creditor Claims: If any person whose name is on the title has unpaid creditors, those creditors may be able to force the sale of the home to satisfy those unpaid debts. So, deeding a home to a child who either has, or may end up having creditor problems (anything from unpaid credit card debt to liability for an auto accident or medical expenses, for example), could cause the parents to lose their home while they are still living.
Transfer Complications: Also bear in mind that, once an interest in the home is transferred to a child, it may be a one-way trip. The child then has to agree in writing to any subsequent sale, transfer, or the refinancing of the property. If there is a falling-out between the parents and that child, that may prove to be a problem. Or worse yet, the child could sell the house out from under the parents while the parents are still alive in the event of a serious schism.
Loss of Homeowner’s Exemption: In Idaho, a home in which the owner resides receives a substantial break on property taxes under the Homeowners Property Tax Exemption. But, if the title to the home is deeded to a child to avoid probate, that home is no longer owned by the occupant (the parents). It is usually owned by the child who lives elsewhere. So, the property taxes can easily jump by more than $1,000 per year for the rest of the parents’ lives.
Loss of Stepped-Up Basis: Transferring a home to a child while the parent is still living may also result in substantial long-term capital gains taxes being due when the child sells the house. On the other hand, when a child inherits the house under a Will or Trust that the parents have set up, the accumulated long-term gain for tax purposes is wiped away at the death of the parent. The child receives the benefit of what is called a “stepped-up basis” upon the inheritance of the home. The child can then sell the home after the parents pass away with much lower (or even zero) taxes being due in connection with the sale.
So, a parent should always exercise great caution in considering deeding a home to a child as a means of avoiding probate. For most people, it’s a path that is fraught with dangers.Need More Info? Give Us a Call
If you would like our help with this or any other probate questions, please give us a call at 208-939-2600 to schedule your free initial consultation. Or you can schedule your expedited appointment at your convenience by clicking on either of the gold “Schedule Now” boxes on our Home Page.