Estate Planning: How Your Home Fits Into Your Plan
The kids haven’t lived there for years, but your house has been in the family since before your first child was born. Not only have property values skyrocketed, it’s so full of memories that it’s practical another member of the family. So it’s only natural that you want your kids to have the house--without paying a fortune for it.
Qualified Personal Residence Trust
A Qualified Personal Residence Trust (QPRT) is a good way to pass your home down to your kids without getting slammed by gift taxes. So how does it work? You would put your home into a trust for a certain number of years. After that time period, the ownership transfers to your children. You can go this route even if you still have mortgage payments on your house. The main difference is that the gift if now the equity of your home, not the whole value.
Going this route means putting complete trust in your children. Once they own the home, they can legally evict you. You should also have an open discussion about finances before you choose a QPRT. If one of your children owes money, you could lose your home to their creditors.
An LLC or Limited Liability Company is another way your children can get your home as a gift and pay fewer taxes on it. You’re basically setting up a company for your house made up of you and all your children. Over the years you can transfer more of your share of the property to your children. As long as you’re staying under the federal and state limit for tax-free gifts, your children won’t have to pay any extra.
Before you choose
It’s always a good idea to have an open, honest discussion with your kids before you gift them a house. Even though you love the house, they might rather you just sell it and move to the city. If they do want it, make sure there’s an agreement on how expenses are going to be split. Even if they all want to share the home you’ll need to talk about what happens if one child eventually wants to sell and the others don’t. Once you figure out the rules, get it in writing--just in case.