Estate Planning is a topic no one wants to think about. But, unfortunately, estate planning requires a lot of thinking and careful preparation. Often, a seemingly harmless act has catastrophic, rippling effects on other family members. For example, aging parents are looking for ways to protect their children’s inheritance from probate or estate taxes. Unfortunately, all to often parents are deeding their homes to their children, thinking it is a less expensive and easy way to transfer ownership. However, there are several reasons to avoid this alternative.
First, let me define what it means to “deed your residence.” Simply put, it means transferring the title to your children’s name without a formal sale. If the parents are ready to down size to an assisted living facility or prefer to remain in the home but are concerned about future estate taxes, deeding property appears ideal.
But, if the transfer is completed within five years before the parents require nursing home care or government benefits, it can cause a delay in Medicaid eligibility.
Additionally, if the property is in Illinois, there are property tax exemptions for owner-occupied property and senior-occupied property. So unless the children are moving in with the parents, or the children are over 65, the property tax bill will go up.
And what happens if the property is deeded to an adult child, and that child subsequently gets divorced? The ex-spouse is entitled to half of the property. If the parents’ intention was to stay in the home, this divorce could significantly alter those plans.
Finally, if aging individuals sells their property, its exempt from capital gains tax. However, if the property is deeded to the children and they sell it, the children may be looking a substantial capital gains tax liability.
No, estate planning isn’t fun. It can be stressful. But, mostly, estate planning needs to be strategic.
If you have questions regarding a contract for deed, or any other estate planning options, you can contact me at 618-659-4499 or e-mail me at firstname.lastname@example.org. You can also visit our website and learn more about our estate planning strategies at www.sivialaw.com/estateplanning.