When talking to friends, neighbors, or people at the local café, it might seem simple to transfer ownership of your home. Reasons can vary. You might want to reduce your assets for estate planning or Medicaid. Or, it is just convenient. (State law regarding titling of real estate ownership can vary. This is a general discussion.)
It is gone forever
There are multiple ways to add your child or family member to the title to your home. Once it is filed at the courthouse, it is a done deal. Consult with an attorney familiar with local law. The titling makes a difference. Do you know the differences between:
- Joint tenancy with rights of survivorship
- Joint tenancy
- Tenancy in common
- Tenancy by entirety
- Various ownership within corporations, partnerships, and trusts
With the change in the title of the home, you have given a portion of ownership to someone else. The person or entity on the deed has the right to agree to any change-rental or sale. Additionally, the co-owner can sell or transfer their interest.
The child or co-owner could have life changes that affects you. If there is a divorce, death or lawsuit, your home is at risk. Being a co-owner of the home also serves as their asset base when applying for assistance or loans.
They have seen it all
If someone is depleting their assets to qualify for Medicaid nursing, the government has the ability (which they use) to review asset transfers. Any transfers within the last five years of the application for Medicaid, could potentially be reviewed.
Others are involved
A mortgage on the property requires an additional step. You can contact the mortgage holder before the change in ownership. The company may require information to allow for the change in ownership. For example, they may need from the new owner:
- A financial statement
- Identification and address
- Credit report
The mortgage could affect the borrowing ability of the new owner (and you as the original owner).
Gifts to one person in your life, but not another, will generate “feelings”. Gifting of property appears to be the answer. However, if the recipient cannot maintain the property, the gift quickly decreases in value. Asset transfers can be tailored to meet the needs of your family. It is important to consult your assets with your accountant and attorney.
Now-the tax issues
If an asset transfers at death, the value of the asset increases to the value at your death as well. (An estate return may be required.) Ownership transferred during your lifetime, also transfers your basis. For example, you transferred 50% of your ownership:
- Your home cost 100,000,
- It was worth 150,000 when you transferred ownership
- It was worth 250,000 at your death
The tax picture is:
- Your co-owners’ cost basis is 50,000 (100,000 * 50%) and
- Their gain on sale would be 75,000 (250,000-100000*50%)
Nothing is easy
Your home is a large asset in your estate. Family dynamics, legal issues, and debt adds multiple questions to the equation. Contact us if you have questions about a change in ownership.
HoganTaylor Tax Thought Leadership
HoganTaylor Tax Thought Leadership is designed to help you keep up with the latest tax and financial issues that can affect your organization. If you have any questions about the content of this publication, or if you would like more information about HoganTaylor's Tax services, please contact one of our experts.
INFORMATIONAL PURPOSE ONLY. This content is for informational purposes only. This content does not constitute professional advice and should not be relied upon by you or any third party, including to operate or promote your business, secure financing or capital in any form, obtain any regulatory or governmental approvals, or otherwise be used in connection with procuring services or other benefits from any entity. Before making any decision or taking any action, you should consult with professional advisors.