Your home may be one of your most valuable assets. In addition, you may be concerned about how to avoid probate. It may seem like the easiest way to transfer a property to your loved ones is by simply putting a child’s name on the property title because it may seem easier than going through the probate process or creating a comprehensive estate plan.
However, significant tax problems may be created by putting your child’s name on the property while you are alive. For example, when the property is sold, the government may charge a tax on how much the property’s value has increased since you bought it. This is known as a capital gains tax. For example, if you purchased a home many years ago for $100,000, but it is now worth $500,000, that is seen as a $400,000 gain.
The starting point for calculating that gain will be “stepped up” to the home’s market value when you pass away. If you add the child’s name to the title now, however, then the child may also take on your additional $100,000 basis, which means they could be taxed on the entire $400,000 gain, a significant and avoidable tax bill. Even if your child never sees a dollar of the home’s appreciation and value, without the right estate planning strategy, they could be responsible for coming up with tens of thousands of dollars in taxes.
It is far better to communicate with our estate planning lawyers in Pasadena to determine the most efficient way to transfer this asset while minimizing potential pitfalls.
