While you may wish to give your children their inheritance before you die, you may be unaware of the risks associated with such a move. Make certain that you are knowledgeable of the consequences of gifting property to your children, including a house, land or stock.
If you have more than one home, and would like to give your child one of them, the child would receive the tax basis of the home in addition to the home itself. This means that upon the sale of the home, your child may be required to pay taxes on any gain, which is the amount realized minus the amount you paid for the home. In addition, upon the death of your child, the house would be accessible to creditors, a divorcing spouse or probate.
However, if you were to place the house in the appropriate kind of trust, your child could be granted the irrevocable right to reside there. You could also give yourself the right to remain there during your lifetime. At your death, your child would be entitled to the house with a tax basis equivalent to the fair market value of the house as of the date of your death. Thus, if you paid $100,000 for the house, and upon your death, it had a fair market value of $200,000, your child’s basis would be $200,000. And if your child sold the house for $200,000, there would be no gain and no taxes.
Furthermore, placing the house in a trust would safeguard it from creditors, a divorcing spouse and bankruptcy. It could remain in the trust for generations, and continue to receive such protections. And in the event your child is unable to inherit the house, a trust will allow you to keep control over who will eventually receive your property.