A lot of folks will come to us and say, “What’s the best option with the house?” “How do I avoid probate?” “What happens if I get sick?” And I hear this more often than you would expect: “Why don’t I just give my house to my kids? I don’t ever plan on selling it. That’s where it’s going anyway.”
Well, if you make the transfer complete during your lifetime, it’s not your house any longer for good or bad. Have to be careful there. But you’re also causing the children a significant tax problem, and that would be in regards to capital gains. So the trick is to try and keep the house in your name for tax and liability protection, but efficiently transfer it to the children.
There are certain trusts that are very good at that, but there are certain deeds that could be good as well. One is the life estate deed. Everybody knows that as the old Lady Bird Johnson deed; she was the one who actually created it. So what you’re doing with the life estate is you’re giving the property to your children. They call that a remainder. But you’re reserving the right to live there. So it’s yours during your lifetime. They can’t kick you out, charge you rent. You can mortgage it, sometimes you can even transfer it, but you can’t sell it without the children’s permission, let’s say.
The whole theory there is, well, if you give it during your lifetime, it avoids probate. It does have some Medicaid benefits. Not complete benefits, but some. Talk to your advisors about the pros and cons of that strategy; the state has really chipped away at that. But it does preach patience, so it helps with capital gains. So the value of the life estate deed is it will avoid probate, keep an eye on capital gains, and give you at least a portion of Medicaid protection.