Should I Gift My Home to My Kids?

Why Tax Law and Medicaid Law May Make This a Bad Idea

We often hear questions like, “Should I gift my home to my kids now to avoid probate?” or “What happens if I leave my house to my children in my will?” These are important questions, and understanding a tax concept called the step-up in basis can make a huge difference in your family’s financial future.

While gifting your home may seem like a straightforward and generous gesture, it can create unintended consequences, like higher capital gains taxes for your kids or complications with Medicaid eligibility if you need long-term care. Here’s what you need to know.

Higher Capital Gains Taxes Due to Step-Up in Basis

What Is Step-Up in Basis?

The step-up in basis is a tax rule that adjusts the value of an inherited asset—like your home—to its market value on the date of your death. This adjustment minimizes the taxes your heirs would owe if they decide to sell the property.

Here’s an Example of Gifting Your Home After Death:

• You purchased your home 30 years ago for $100,000.
• Today, it’s worth $500,000.
• If your kids inherit the home after your passing, the home’s value (basis) is “stepped up” to $500,000.
• If they sell the home for $500,000, there’s no capital gains tax owed because there’s no increase in value beyond the step-up.

This is why the step-up in basis can save your family thousands—or even tens of thousands—of dollars in taxes! Normally, people really want to take advantage of the step-up in basis.

The Downside of Gifting Your Home Now

When you gift your home during your lifetime, your children inherit your carryover basis instead of getting a step-up in basis. This means they take on the original purchase price, plus documented improvements as their taxable value.

Here’s What That Looks Like:

• If you gift the home while you’re alive, your kids’ basis is $100,000 (your original purchase price).
• If they sell it for $500,000, they’d owe capital gains tax on the $400,000 difference.

This is why gifting your home to avoid probate can backfire—it creates a bigger tax burden for your kids down the line after you die.

Medicaid and Long-Term Care Planning

Another reason to think twice before gifting your home is Medicaid’s look-back period. If you gift your home now and later need long-term care, Medicaid can penalize you, potentially disqualifying you from benefits for years. That could mean that you don’t get the care you need because you don’t have the money left to pay for it.

Estate planning isn’t just about passing on wealth; it’s also about protecting your own financial future. Decisions like gifting your home should be carefully considered within the larger context of your long-term care and financial goals.

Why This Matters for Your Estate Plan

Estate planning is about more than wills and trusts—it’s about ensuring your family is financially secure and avoiding unnecessary taxes or penalties. When working with an elder lawyer, it can also protect your care needs and assets. By keeping your home in your name and passing it through your estate, you potentially could:

• Reduce Capital Gains Taxes: Your kids benefit from the step-up in basis, potentially saving them tens of thousands of dollars.
• Protect Medicaid Eligibility: Avoid triggering penalties that could impact your access to long-term care benefits.
• Secure Your Legacy: Make sure your decisions today protect your family’s future.

Note: There are times when a strategic plan to gift real estate during life makes sense. This is critical to work with an experienced estate elder law attorney like Safe Harbor Estate Law to create that strategy.

Common Questions We Hear

• “Should I gift my home to my kids now?”
• “What are the tax implications of gifting property?”
• “How does a step-up in basis work with inherited property?”
• “What is Medicaid’s look-back period for gifting assets?”

These are valid concerns, and the answers depend on your unique situation. That’s why we’re here to help.

Take Control of Your Estate Plan Today

If you’re considering gifting your home or want to know how a step-up in basis fits into your estate planning strategy, now is the time to act. At Safe Harbor Estate Law, we help families like yours protect their assets, minimize taxes, and plan for the future.

Let’s create a customized plan that safeguards your family, preserves your legacy, and ensures peace of mind for years to come.

Contact us today to schedule your consultation and learn more about how strategic estate planning can make a lasting difference for you and your loved ones.