Giving a home to a son

ruthannDecember 13, 2012

Hi, I want to give a home to my son, he currently lives there. How can I go about it and do it as cheaply as possible? Will I need a lawyer? Thanks.

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liriodendron

You need a lawyer, and perhaps an accountant, to explain that it may have unexpected, negative financial consequences for both of you.

You and he may lose valuable tax advantages. You may incur taxes on the gift depending on the valuation. If you have other children they may need to be involved for the sake of family commity. What you are doing is not wrong, it's just that the real estate tax system is set-up to offer advantage to other means of inter-generational transfer. You'd be foregoing a very generous the one called stepped-up basis.

Another very important thing to consider is that if you give your house away to your son and then later need publicly-funded assistance (MedicAID) to pay for nursing home costs, you may be ineligble for that aid because you transferred an asset without payment to someone wothin your family. They could expect your son to repay the "value" of that lost asset before you could recieve aid. The look-back period is either 3 or 5 years, I belive.

However, if after you explore these issues with a profesional, you can still choose to go ahead. You will need to draw (or copy out if there is a standard form in your state) a deed. You may or may not owe transfer taxes, even if you are just gving it to him. You will have to file a form with the IRS, and depending on circumstances pay some income taxes on the value.

I am assuming you owe no mortgage on the property. It is unlikely that you could transfer your interest and have your child take any debt. It's likely the mortgage would have to be paid off and new one orginated uin your child's name, and based on his own income and credit scores.

For all these reasons, I go back to my first advice: hiree a lawyer or accountant and get the facts as they pertain to you and your property and situation.

The mechanics will be easy once you understand the ramifications of what you propose.

Consultation with an attorney should cost no more than a few hundred dollars ($100-400), and if you decide to go ahead, for that a fee a simple deed could be drawn up as they are quite standard.

HTH

L.

    Bookmark   December 13, 2012 at 6:08AM
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GreenDesigns

To sum up and echo Lirodendon's eloquent information: Get a lawyer, but it's a BAD idea in 99% of cases.

    Bookmark   December 13, 2012 at 7:37AM
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weedyacres

Liriodendron covered most everything. A few hundred dollars is a small price to pay to ensure you or your son won't have to spend thousands in "stupid tax." The attorney can help you set up the right structure to transfer it to avoid gift taxes and Medicaid clawbacks. Google either of those terms to get specifics on the laws.

There's something else to consider, and I may be going out on an inappropriate limb here, so forgive me if I'm judging something I know nothing about. But if your son is living in your home for free because he's got money problems due to poor decisions on his part, and you are thinking that this will help him, it may end up being more of a curse than a blessing. If this is the case for him, and you give him a house free and clear, he could go out and borrow on it, get behind on payments and lose the house. Or he could deed the house to someone else (a girlfriend? yeah, it's been done) and lose it. Or a multitude of other things. So if he's not completely responsible, it would be better to let him live in it for free and leave it to him in your will. That way you maintain control and can prevent him from doing stupid times 20.

If, OTOH, he's a good son, gainfully employed and supporting a family, fully able to buy this house from you, and this is a just a matter of you wanting to do something very generous for him, then talk to a lawyer and get it done the right way.

    Bookmark   December 13, 2012 at 9:05AM
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trilobite

I'm going to be a terrible busybody and add to Weedyacre's post and say that I've seen gift houses turn out to be a "trap".

In my region, I see parents who want to keep their adult children close and it's very sweet. But it also means they often can't seriously pursue meaningful career goals or take other steps to establish themselves in life.

So, they end up in dead end jobs with little practical life experience. There's family pressure to not cash in on the equity, even if they'd like to go elsewhere. Worse case scenario, the house is in rough shape so their cash is perpetually drained with maintenance.

Last but not least, they never have the adult experience of going to a new place and making their way. And, their ability to have new experiences in the future is limited and their choice of spouses is limited.

I really don't mean to be a jerk here, but I have seen all this time and time again. Please think carefully about the "long game" here, that's all I ask.

outside of their region where they know everyone and everyone knows them.

    Bookmark   December 13, 2012 at 10:37AM
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sylviatexas1

"let him live in it for free and leave it to him in your will."

Depending on the size of the rest of your estate & the likelihood of your needing help late in your life, this would probably be the easiest, "cleanest", & safest way to do it.

I wish you the best.

    Bookmark   December 13, 2012 at 3:52PM
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graywings123

I would certainly talk to a lawyer before doing anything.

    Bookmark   December 19, 2012 at 7:24PM
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ruthann

OK, I guess I will talk to a lawyer after the holidays are over. I guess I should have given you more info than I did. I am 71, no husband, and am tired of having this place "hanging over my head". We bought it for a daughter to live in 24 years ago. She lived in it many years, another son lived in it many years, now my last son is living in it. The rent only pays for the upkeep of it (insurance, taxes, sewer and electricity/heat.) He can't afford to pay more. This house is worth $30,000 according to the tax statement. (A few years ago it was worth over $100,000 but thanks to GM and NAFTA it went downhill fast). Plus it is close to Flint, Mi, which is the crime capitol of America. Last year I paid attorney fees for #2 son at $25,000. My daughter -43- does drugs. 16 months ago she and her boyfriend stole my car and we haven't seen nor heard from them since. So I don't owe her anything. I would like to sell it, but you can get nice houses around here for $10,000 and up (repossessed), so I can't see anyone buying mine for $30,000. I just want out before the roof leaks, the sump pump quits, or a tree falls on it, or whatever...... No, I am not wealthy, but I am very frugal. I JUST WANT OUT!! That's my explanation, and I guess I will have to pay a lawyer to get it done. Thanks everyone....

    Bookmark   December 22, 2012 at 12:15AM
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weedyacres

Since the house doesn't have much value, the gift tax implications are much less potentially significant. You can gift anyone up to $13,000 calendar per year without paying gift taxes. You could sell it to him for $30,000 with seller financing, and then forgive $13,000 of the loan per year. If you signed the paperwork before year end, you could forgive 13K this year and 13K a week later. If you can justify the purchase price at 26K, it could be done next month. If your son is married, you can gift 13K to each of them each year, so 26K this year and 26K next year.

I would still involve an real estate attorney to make sure you get the paperwork right, the title recorded properly, etc. so that you can be free and clear of the thing. It's for your protection more than anything, and worth the $500 or so it will cost you.

It sounds like the concerns some of us raised about "are you truly blessing your child if they can't afford to support themselves" don't apply here either, as you're just trying to dump the place. It sound like you're ok if he does stupid and loses the house, and hopefully you won't feel obligated to bail him out.

    Bookmark   December 22, 2012 at 8:40AM
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liriodendron

Yes, with these new facts and the unusually low value of the house many of my concerns are moot.

Weedy's point about giving w/o gift tax implications is right on the money. And her point about getting it done next week so you can do it more rapidly is correct, as well.

The value of the stepped-up basis for transfer after death also seems less important on a house with minimal value as well.

A caveat though, when you stated the valuation, was that an appraised figure by a qualified apparaiser, or just the taxable status amount? The amount listed for taxable purposes is more often than not an artificial figure intended only to establish the relative worth when comparing among all the taxable properties in a jurisdiction. Even if it's supposedly an estimate of "fair market value" that's usually just a sop to keep the taxpayers quiet. You may need to pay for a written appraisal, which shouldn't cost more than a few hundred dollars.

Finally, regarding one of reasons I noted above which was the issue of Medicaid look-backs still needs to be thought about. That's where you need the advice of an qualified elder-law attorney. The look-back provisions on asset transfers would still come into play no matter how low the houses's valuation. Since you say that you can buy houses in the area in the 10K range, it's possible that's really what the apprased value is now. A written appraisal may come in low enough that you could transfer the ownership in one whack. A written appraisal would also cushion the look-back issue somewhat if it is very low.

Good luck to you. I hope our collective suggestions are helpful to you, even if some of them don't apply to your situation.

L.

    Bookmark   December 22, 2012 at 10:22AM
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