Ever think it might be simpler or less expensive to gift your assets to your adult children now during your life, as opposed to having a will and trust drafted?
Here are four reasons why you should reconsider.
Reason one: You could be responsible for paying taxes on those assets. This is what is known as a “gift tax.”
Yet, assuming you avoid paying the “gift tax,” they may still have to pay capital gains taxes based on the home’s tax basis. In other words, if you purchased your home for $100,000.00 and gifted it to your children, then they are receiving the house with a tax basis based on the $100,000.00 purchase price. If (during the time you owned the home), the value increased to $200,000.00. … If or when the children sell the home, they will be responsible for paying capital gains taxes on the difference.
If the house is sold while you are living, you don’t pay taxes on gain up to $250,000.00. So using these numbers, you would not pay a tax if you had not given away the home. But your kids would pay $25,000.00 if you give them the home.
Reason two: If one of the siblings gets divorced, sued, disabled, or becomes bankrupt; their assets (all of them, including what you gifted) are subject to claims by the divorcing spouse, plaintiff, creditor, etc.
Reason three: Imagine there are assets besides the house; assets which you and your spouse need to live on. By transferring those assets to your child or children, you are essentially putting your security into their hands.
Supposing your child is married and then becomes incapacitated or worse, your assets transfer to their spouse. – Now your security rests in the hands of your daughter-in-law or son-in-law.
The alternative …
We aren’t saying there isn’t a chance gifting your assets to your children wouldn’t work out, but any number of variables could cause this “simple and inexpensive” solution to become anything but.
In contrast, having a will and trust drafted could help you and your heirs avoid paying unnecessary taxes, remove undue worry or burden from your heirs, and allow you to delegate just who gets what without worry or interference. . All things considered, a will and trust are the simple and inexpensive option.
Want to learn more about wills, trust, or other estate planning options? Consider making an appointment with a qualified estate planning attorney for a free consultation.
Jul 3
