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Should I Give My House to My Children Before I Die?


Many people understandably wish to minimize or avoid the need for probate of their estate. But not every means of avoiding probate is created equal. Some apparent “shortcuts” may end up creating more problems than you realize for both you and your heirs.

How the “Stepped-Up Basis” Works

For example, say your estate planning goal is to leave your house to your children. You might decide, “Why don’t I just sign a deed transferring title to them now, while I am still alive.” This way, you reason, the house never needs to go through probate.

In theory, this sounds easy enough. In practice, it raises a number of potential legal and tax issues. For one thing, by signing title away to your children now, the house legally belongs to them. So if they decide to sell the property or force you to leave, you may have no choice but to go. You cannot simply “take back” the property once you signed your ownership rights away.

A second issue is that if and when your kids do decide to sell the house, even after your death, they may end up paying substantially more taxes then if you had left them the property in your will. This is because of a tax law concept known as “stepped-up basis.”

To explain this in simple terms, when you sell an asset like a house, you need to pay tax on the “capital gains” on the sale. The capital gain is essentially the sale price less the original “cost basis” of the property. The cost basis, in turn, is what you paid for the property yourself.

So let’s say you purchased a condo for $150,000 in 1990. If you sold that same condo yourself for $400,000 in 2020, your taxable capital gain on the sale would be $250,000.

When you die, the cost basis of your property normally resets to the fair market value on the date of your death. So if you pass away in 2020, the new cost basis for the condo would reflect the current market value of $400,000. If your children quickly sell the condo for that amount, they will effectively pay zero capital gains tax on the sale.

But let’s say you gifted the property by deed to your children before your death. In that case, the cost basis does not reset. The original $150,000 basis carries through. So when your children later sell the property for $400,000, they will owe tax on the $250,000 capital gain.

Speak with a Lee County, Florida Estate Planning Attorney Today

None of this is to suggest there are no means of transferring your home outside of probate without running the risks described above. A qualified Fort Myers estate planning lawyer can review your situation and advise you on the best steps to take in protecting both your family and your property. Contact the Kuhn Law Firm, P.A., at 239-333-4529 today to schedule a free confidential consultation with a member of our estate planning team.

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