Estate planning attorneys cannot see a month pass in which someone approaches them about giving a home, cabin or farm to the next generation. The motivation? Usually it has to do with fears about estate taxes, nursing homes, and probate. All too often transfers are made before speaking to an attorney. Which typically results in a huge mess.
- Gift taxes were never paid. Yes, if you give someone $13,000 or more (in calendar year 2012) you need to tell the IRS via your tax return. Adding kids' name to the home deed constitutes a gift in most cases;
- If you put relatives on your deed to the home, cabin or farm, their legal problems are now your legal problems. Divorce, bankruptcy, personal injury liability, even death can envelop the property;
- Tax credits for vets, widows, low income individuals may end; and
- Income tax issues can be created for the next generation if the property generates income.
A lawyer can go on and on about the ins and outs of gifting, but nothing drives the point home better than a true life situation. Recently I read about this topic in a blog post by Ann Margaret Carrozza -- life is stranger than fiction.
Elderly judge asks his daughter, son-in-law, and grandson to move in with him after his wife dies. After some time he decides to gift the house to his daughter. Then, at age 34 she dies....without a will. The home is controlled by state statute and passes 1/2 to her husband and 1/2 to her four year old son. Within a year the son-in-law starts dating and recommends that "dad" find a new home because having is deceased wife's father in residence is a bit uncomfortable if he brings a date home.The part of this story that makes my jaw drop is that this is a judge we're talking about -- lawyers are trained to see worse case scenarios. Apparently he did not apply this to his own situation.
Image Credit: The backyard of the author's home, which is covered by a will.