Many parents, particularly those who watch their adult children struggling to manage their finances, feel they would rather gift their children now than have the younger generation wait to inherit. Not only would such an act help their children be more comfortable in the present, it will give the parents the joy of watching their assets be put to good use while they are still around.
It is important for parents in this position, however, to consider the consequences carefully with an experienced estate planning attorney before making any hasty decisions. There are risks and benefits to the concept that should be weighed since unexpected complications can arise.
The following problem is not an uncommon one. The parents own two properties, but primarily reside in only one of them. An adult child has taken up residence in the second property and they would like to give the house to him or her while they are still alive. Some possible unintended scenarios may result, such as that the adult child will have to:
- Pay taxes on the house's increased value (over what was originally paid for it) when he sells it
- Consider the house as an asset in response to debt, divorce or probate (if he or she dies)
In addition, if the house goes to the creditors or ex-spouse, the parents may no longer be able to have the use of the premises once the house no longer belongs to your child.
Possible Alternative Arrangements
Fortunately, there are other ways to protect both your assets and your children. If you place your second house in the appropriate form of trust, your child could be gifted with the irrevocable right to live there and you, the parents, would maintain the right to visit that house at your whim for the remainder of your lives. Another benefit would be that, upon your death, the adult child would have full rights to the house and the taxes, if he or she chooses to sell the property, would be based on the fair market value as of the date of your death (an amount likely to be much greater than the house's original cost.
In addition, holding the house in trust protects your adult child's home from lawsuits, bankruptcy, and divorce. And, if something happens to your adult child, you maintain control over who receives that house in his or her stead.
Whether you are considering giving a house, vacant land, or other assets to your child or children, it is essential that you consult with a knowledgeable, skilled estate planning attorney so that you do what is in everyone's best interests.