You likely have fond memories in your house and have put a lot of work into keeping it in good shape. You may have spent thousands of dollars on improvements or additions, but that does not mean your children want the house.
By the time you pass, the beneficiary may be solidly planted where they are and satisfied with their career. They may have no intention of leaving or taking time to maintain another house.
These things should make you think twice before deciding to give your house as an inheritance. Here are some other reasons why it may not be the best idea.
When multiple adult children inherit a house, the problem could result in rifts in their relationships.
AARP says there can also be problems if all their names are on the last will and testament because one or more may want cash, and another wants the house. It could be settled by the child wanting the house to buy the others out and pay their portion.
- Potential Financial Problems
Adding your child’s name to the deed of your home could result in legal trouble.
ISCGLaw mentions that children can sometimes get into financial trouble, no matter how responsible. It can come from many ways, including owning a business, college debt, having a divorce, etc., that can put the ownership of your home at risk—even while you are still alive.
Giving your home as a gift may not be wise because it could cause the recipient serious tax problems, which they may be incapable of handling.
Investopedia mentions that when you give it as a gift, the cost basis of the house is what you paid for it and the cost of remodeling or additions.
When they sell the house, they must pay capital gains tax on the difference between their cost basis and the house’s current value, which could be hundreds of thousands of dollars more. They may not be able to afford the taxes.
When the house passes to them after your death, the cost basis steps up to the current fair market value. Then, when sold, taxes will be much lower, making it a better choice for them.
Another option would be for them to live in the house after inheriting it. They need to do so for at least two years before selling it. After that, they would get a tax exclusion amount of $250,000 for a single person and up to $500,000 for a married couple that file a joint tax return.
- You Might Need the Money to Live On
Since you do not know what the future holds for your health, you might want to keep the house. You may need long-term care or extensive surgical procedures, all of which cost a lot of money.
Holding on to your home as long as you are alive gives you another source of money if you should ever need it for yourself or your spouse. It will give access to your home’s equity, and if need be, you may be able to get a reverse mortgage.
According to
Finance.Yahoo, the average cost of a nursing home in 2020 is $7,756 per month. That comes to $93,000 a year for a semi-private room. Private rooms run about $8,821 per month.
Yahoo also mentions that a long-term healthcare policy does not cover everything. Most of these policies do not cover pre-existing conditions such as cancer, diabetes, and cardiovascular disease. They also do not cover drug or alcohol abuse, self-inflicted wounds, or mental illness. An illness caused by an act of war is also not covered, says
LTC-Associates.
- Unable to Handle the Maintenance Costs
Depending on the house’s size and if any more mortgage payments are due, the cost of maintaining the home may be too much for your heir to manage. They will be responsible not only for the upkeep of the house and property but also need to pay the taxes, insurance, and utilities and be able to keep everything in good working order. Although it varies by area,
Zillow mentions that the average yearly cost of maintaining a home averages about $9,400 per year—and that does not include mortgage payments.
Consider a Reverse Mortgage
Instead of gifting your house to your kids or putting it in your will for them, you may want to consider getting a reverse mortgage. This kind of mortgage pays you so much monthly, or a lump sum, for an agreed-upon time. You live in the house as long as needed, or just your spouse if you pass away.
A reverse mortgage ensures you and your spouse have a place to live. You are responsible for paying for maintenance, utilities, taxes, and insurance while living there.
TrustandWill suggests holding onto it if there is a possibility your retirement income will not maintain your standard of living.
When it is no longer needed, the mortgage company owns the house. If one of your children wants it, they can repay the loan to the lender. Although you can still put the home in a will,
Kiplinger notes that the heirs must decide how to pay off the loan or sell the house. They also would be responsible for maintaining it, paying taxes, insurance, etc.
Put the House in a Trust
The best way to give your children a house would be to put it in a trust for them. Creating an irrevocable trust enables you to determine the terms, possibly letting you live in it until it is no longer needed. You cannot change the terms once put into the trust.
ElderLawAnswers also mentions that after the house is sold, the proceeds belong to the trust—not you. The trust will also prevent it from being subject to recovery from Medicaid, but you also need to wait five years before applying for it.
The best way to pass your assets and house to your heirs is to talk to an estate planning attorney to ensure you avoid any mistakes. Laws are constantly changing, and they will know what you need for a successful wealth transfer.
The Epoch Times copyright © 2023. The views and opinions expressed are those of the authors. They are meant for general informational purposes only and should not be construed or interpreted as a recommendation or solicitation. The Epoch Times does not provide investment, tax, legal, financial planning, estate planning, or any other personal finance advice. The Epoch Times holds no liability for the accuracy or timeliness of the information provided.
