We are in our 80s and want to transfer ownership of some homes to our children. How should we do this in a tax-advantageous way?

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Dear Marketwatch,

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We are a couple in the 80s who have been retired since 1996. We have two kids who are living in our two houses. We want to know when should we start transferring titles to children which will be tax-advantaged for them.

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Dear Parents:

You’re generous to your kids, but since the houses are already being used by them, what’s the rush to get titles named after them?

Your attention to their taxes sounds like a noble cause, but what’s best for you as a couple? Your financial status, assets and family relations are the major ones.

The essential factors are the value of your net worth, then your federal and state estate tax status and your will, and how the trust is written off if you have it. Then there are the Medicaid eligibility rules as well as the gift and inheritance tax issues.

Without knowing all of your financial details and the state you live in, I can only give you a comprehensive overview of those issues to consider. I urge you to consult with your accountant, lawyer or other advisor.

Talking to your kids is important. You want to be clear about what you are giving and why. Most of all, explain the big picture and what will be the outcome in the form of inheritance. More than 80% of parents are not transparent with their families about their finances, according to a study,

Without clarity and understanding, your adult children may become confused, expect a large inheritance, or worry unnecessarily about themselves and their spouses.

what to consider

Before you act, think about yourself. Evaluate whether you have enough to take care of both of you for the rest of your life.

According to life expectancy table, the average person is 80 years old and can live seven to nine years; However, it does not consider lifestyle, health issues and quality of life. Most financial planners are making financial projections by age 95 or 100, which I find prudent because people tend to live longer.

Your gift-giving may affect eligibility for Medicaid. Almost all states have a 60-month look-back period, although in some states it is shorter. This is to make sure you haven’t gifted assets or sold them below market value to receive everything from free or reduced rate home care to nursing-home payments. Understand your state’s rules before changing the title.

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Even if Medicaid may not be a problem, be realistic about the cost of additional home care, assisted living, or nursing facilities. Keeping homes longer can give you more resources to pay for that care when you need it.

On the relationship side, consider these questions:

Financial decisions affect family relationships. Remember that once the property is in their name, your adult child can do anything with it. Think about how watching their decision-making might affect you.

Communicating your expectations is essential. I saw a young couple selling a house that was gifted to them by my client. The couple then bought a bigger house and asked the parents to contribute financially to this new property so that they could improve it. This left the parents frustrated and unable to say no. However, the young adults could not manage the additional expenses of a larger household and were plagued by debt. The parents were filled with despair.

how to transfer property

If your goal is for your children to save money on taxes, usually the best approach is to wait until you die and let them inherit the house. They will inherit the home at the market value of the house at the time of your death, not now at the time of gifting, when their cost basis starts at the price you purchased the home. This is important for computing capital gains whenever they are sold.

Under today’s rules — which are adjusted for inflation and sometimes reduced by law — you could pass up $12.06 million ($24.12 million for a couple) free of federal estate taxes.

The IRS Makes It Easier for Families to Give Millions of Dollars to Their Children and Others

The value of the home will be “increased” upon death and will become the starting point (“cost basis” for the IRS) for calculating any capital gains taxes whenever they are sold.

Here’s How You Can Save Money on Capital Gains Taxes When You Sell Your Home

Even if your estate is well below the federal tax-exempt limit, your estate and gifts may still be subject to state tax, Eleven states have an estate tax, and they start at less than $1 million; Five levy inheritance tax.

If you want to gift all the houses at once before you die, it can still be gifted tax-free, but you’ll need to file IRS Form 709 for the tax year of the title transfer. The amount you gift will be reduced by your tax-exempt limit for estate tax upon your death.

Keep in mind that this form is required whenever you make a gift of more than $16,000 (limits of 2022) to one person in a year.

There are several ways to move the title at once. There are real estate trust options that guarantee the transfer upon your death. For example, by setting up a revocable trust to benefit your child and putting specific assets into it now, you will guarantee that they will receive the assets they live in. It also allows you to retain control of property that you need to sell, obtain loans or rent fees to cover medical care as you age.

Another example, some parents transfer a title over time. As a couple, you can transfer up to $32,000 per year ($16,000 from each of you) to each child, or $64,000 if you made a similar gift to a partner or spouse. Again, these are the limits for 2022.

This approach gives you overall greater flexibility for your estate planning. You can do this with any asset, and your decision should be all or nothing.

To transfer title to a home over time, the title must be changed each time a gift is given and noted with the government record-keepers where the property is located. Please seek legal advice to make sure this is happening correctly.

Finally, be sure to consult with your attorney about the impact on your assets and any changes required to your will and other documents. Talk to your accountant to make sure you comply with tax laws.

Then make the best decision for both of you.

CD Moriarty is a certified financial planner, a columnist for MarketWatch, and a personal-finance speaker. she blogs here moneypiece,

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