Laws and Practices
Many parents believe that transferring the title of their house to their children as a gift could save them the need to write a will and avoid will probate procedure. There are some pros and cons to doing this.
The Story:
Mr. and Mrs. Smith are immigrants and have been in the United States for over 30 years. They started their own restaurant and accumulated some assets by working hard: a primary residence, and a six-family apartment building. In addition, they have some savings in the bank, a retirement fund, and a $1 million life insurance policy. Since they are in their 70s, they would like to pass some of these assets to their two adult sons.
The Pros
While the parents are still in good health and in good mental status, passing the assets to the two sons according to their desire can avoid confusion and dispute between the sons. Since the parents are still alive, they can explain the reasons for distributing the assets as they are. They can also show respect for the sons’ decisions as to whether they want any of the assets or the type of property the sons want to receive.
The Cons
1. Loss of control: If the title of a real estate property is transferred to the sons as a gift, the parents lose control. In the event the sons or their surviving spouses or grandchildren want to evict the parents, the parents have no rights to remain living in the house.
2. Divorce: In the event one of the sons gets a divorce, the real estate property received during the term of marriage is considered marital property. Therefore, in NY, the spouse of the son might be entitled to a portion of that marital property, so the real estate transferred from the parents may be subject to the spouse’s claim.
3. Loss of step-up basis in the event of sale: If this is a gift transfer, in the event the son chooses to sell in the future, the basis of cost of the property is the same as when the parents purchased it. Therefore, the son might be subject to higher capital gain.* However, if the parents leave the assets in the estate, when the sons sell, they can use the market value of the property at the time of the parents death as the cost basis.
* Reader should consult his/her accountant independently.
If you have any questions regarding the transference of assets to children, please feel free to leave a comment in the “Leave a Reply” box below, or give us a call. We will be happy to talk with you. (Hours: M-F, 10:00 am – 6:00 pm.)
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Jacqueline Huang Huang & Associates, P.C. 6402 8th Avenue, Suite 405 Brooklyn, NY 11220 Telephone: (718) 435-666 Email: jackiehuang@huanglawfirm.com  |
