When it comes to wills and estate planning, for most people their most valuable asset is the family home. Commonly, the intent is that the ownership of the home passes on to one of their children after their death.
It is common practice for many seniors to either transfer full or part ownership of the family home to one or more of their children while they are still alive, often with agreement that they will live in the house until their death. The thinking is that by doing this, they are making it easier on their children because the house does not have to go through the estate. Since the ownership is already taken care of, it is one less item that has to be dealt with. It is also a common belief that part of the estate will be consumed with taxes if the arrangements have not been made in advance.
It is true that if the ownership of the house, in whole or in part, is transferred while the parent is still alive, then the ownership of the house is settled quickly upon the death of the parent. If the entire house is part of the estate, then it is subject to delays and probate along with the rest of the estate, especially if there is any type of dispute or claim filed.
However, this is not always the best strategy. It is generally not true that there are tax savings to be found by transferring ownership in advance, although each instance is unique. In fact, if the house is not the principal residence of the child, then they may be subject to capital gains taxes for a longer period of time, which can actually increase the overall tax burden.
Also, for the parent signing over ownership of their house, it is an unfortunate reality that relationships occasionally deteriorate. While extreme, there are cases where a child tries to force a parent out of the house they have lived in all their life. If ownership is transferred, it is a recommended practice that a legal agreement also be put in place that clearly states the parent’s right to use the house for the remainder of their life.
Finally, any property has regular maintenance costs. When the property is transferred over, it should be clear who is responsible for the costs and decisions made about the property, especially if the parent reaches the stage where they may no longer be competent or able to make decisions on their own.
As with many other legal areas, there are both benefits and drawbacks to signing your house over to your child. Professional legal advice can help you identify the individual circumstances around your own situation, and help you make the best decision for both you and your children.