Frequently Asked Questions, Uncategorized

Should I Transfer My Home To My Children?

Deed transferBefore transferring your home to your children, there are several issues that should be considered.  Some are tax-related issues and some are non-tax issues that can have grave consequences on your livelihood.

The first thing to keep in mind is that the current federal estate tax exemption is currently over $5 million and thus it is likely that you may not have an estate tax issue anyway.  If you are married you and your spouse can double that exemption to over $10 million.  So, make sure the federal estate tax is truly an issue for you before proceeding.

Second, if you gift the home to your kids now they will legally become the owners.  If they get sued or divorced, a creditor or an ex-in-law may end up with an interest in the house and could evict you.  Also, if a child dies before you, that child’s interest may pass to his or her spouse or child who may want the house sold so they can simply get their money.

Third, if you give the kids the house now, their income tax basis will be the same as yours is (the value at which you purchased it) and thus when the house is later sold they may have to pay a significant capital gains tax on the difference.  On the other hand if you pass it to them at death, their basis gets stepped-up to the value of the home at your death, which will reduce or eliminate the capital gains tax the children will pay.

Fourth, if you gift the house now you likely will lose some property tax exemptions such as the homestead exemption because that exemption is normally only available for owner-occupied homes.

Fifth, you will still have to report the gift on a gift tax return and the value of the home will reduce your estate tax exemption available at death, though any future appreciation will be removed from your taxable estate.

Given the multitude of tax and practical issues involved, seek counsel before making any transfers of property.  We are here to help you–just give us a call at (888) 829-0894.

Frequently Asked Questions

Is It A Good Idea To Have My Son Or Daughter On My Bank Account?

joint-credit-accountsI often meet with clients who want their adult children to be able to access their accounts to help out with writing checks or paying bills on their behalf. However, this good intention can create a very serious risk of liability if carried out incorrectly.

Often, a parent goes to the bank and asks the teller to add the child onto the account. In doing so, the adult child is now a co-owner of this account. This action may create problems for the parent. For example, if the child has creditors, later files for divorce, has a failed business or files for bankruptcy, then the jointly owned asset may be vulnerable to claims. This could force the parent to lose some or all of that account to pay the child’s debt.

Instead of adding the child as a co-owner on bank accounts, your child could use a properly drafted Durable Power of Attorney (DPOA) to help you deal with your finances should the circumstance arise. A Durable Power of Attorney is a legal document in which you designate who you want to make legal and financial decisions for you if you cannot make them for yourself. I recommend an extremely comprehensive DPOA that allows your agent to handle virtually all legal and financial matters for you. I also usually recommend a DPOA that goes into effect the moment it is signed (rather than one that “springs” into effect upon the principal’s incapacity–called a “springing power”). This means your agent can use it even if you are not disabled. This is often necessary for the DPOA to be accepted at many financial institutions. Therefore, it is very important that you pick only people whom you trust to be your agent on your Durable Power of Attorney. Every Durable Power of Attorney should have a primary agent and an alternate agent who would act only if the primary agent is unable to act for you.

Designating the adult child as a Power of Attorney allows the child to access the account, write checks, pay bills and do everything the parent needs without connecting them personally to the account or exposing assets to the child’s creditors, predators, or divorcing spouses.

Frequently Asked Questions

What Is A Death Probate (And Why Would I Want To Avoid It!)?

Will ProbateA Death Probate is a legal proceeding ultimately controlled by the county probate court. Probate procedures vary among the States. Some are more complex than others. Michigan allows for informal, as well as formal proceedings. Despite these differences, the probate process consists of many steps and procedures that remain a mystery to most people.

For the most part, a Death Probate and the administration of an estate are comprised of six basic tasks: (1) admitting the decedent’s will to probate court and determining its validity; (2) notifying the decedent’s heirs and beneficiaries; (3) taking an inventory and appraising the decedent’s assets; (4) paying any last known creditors; (5) ensuring that any necessary taxes have been paid; and (6) distributing the assets to the beneficiaries or heirs.

The probate process often can be expensive and time-consuming. Studies indicate that the average cost of probate is anywhere between 6% and 12% of the value of the gross estate. The gross estate is the full appraised value of the estate without any reduction for debts or expenses. Some of the costs associated with probate are court filing fees, attorney fees, appraiser fees, inventory fees, bond premiums, and, perhaps the largest expense, asset preservation costs (real property taxes, insurance and maintenance) related to maintaining real estate and other assets while the court process is pending.

The entire probate process can last from several months to several years. The average length of a probate proceeding is between one and two years, although even the probate for a small, relatively uncomplicated estate sometimes lasts several years. The probate process is also a matter of public record. Anyone can access a decedent’s probate file and discover very personal estate planning and financial information about the deceased person and his or her family. If you don’t believe me, just visit your local county probate court and request to view the file of a recently deceased family member or friend…it’s that easy! Often, unscrupulous individuals access these records and prey upon unsuspecting family members and heirs of the decedent.

If that’s not enough, if the decedent owned real estate (another home, a parcel of vacant land, a timeshare interest, etc.) in another State, the family may be required to initiate an “ancillary” probate court proceeding in each one of those States, thereby compounding the time, costs and hassle of settling the estate.

Proper estate planning can eliminate the Death Probate process. It is all about preserving your hard-earned assets, saving tax dollars, professional fees and court costs, and keeping you in control of your own affairs. While it certainly is “peace of mind” for you, ultimately, it is a blessing for your loved ones.