Making plans to pass along a family home is a practical way to ensure your heirs face minimal hassle in the future. By pursuing estate planning now, you can also prevent beneficiaries from owing considerable taxes once they receive the home. Here are some options to consider.

3 Ways to Leave Your Home to Your Child

1. Leave It in Your Will

If you designate your heirs as the recipients of a house in a will, as long as the estate doesn’t exceed $11.7 million in total, it won’t require estate taxes. But if the property has appreciated in value, your children may need to pay capital gains taxes if they decide to sell it in the future. The IRS allows beneficiaries to use a stepped-up basis for capital gains, which looks at the value of the home when it was inherited instead of when it was purchased. 

2. Set Up a Trust

Unlike a will, a trust can provide instructions for how and when beneficiaries will receive assets. For instance, if you have young children or grandchildren, a trust can name them the owners of the home once they reach a certain age. Trusts also don’t go through probate, the public process required to distribute assets for wills. 

If you put the house in an irrevocable trust, you may also be able to qualify for Medicaid and ensure asset protection since the house cannot be claimed by creditors. But as its name suggests, irrevocable trusts can't be undone, so a home or the proceeds from its sale must stay in it. 

3. Sell the House

It’s also possible to sell your home to your children. To reduce their tax burden for this estate planning option, sell it for market value. A bargain sale would be considered a gift, and if the price difference exceeds $15,000 (the annual gift tax exclusion), they will owe taxes. You could then loan your beneficiaries the money to officially purchase the home, but you would have to charge interest and declare it as income when filing taxes. 

With so many options for leaving homes and other significant assets to your beneficiaries, estate planning can be daunting. Rely on the Law Office of George N. Nam. With more than 25 years of experience, they help clients manage the complexities of wills, trusts, and other asset disposition options to minimize tax burdens and streamline the process. Find out more about the Aiea, HI-based office online, or call (808) 487-9455 to schedule an appointment.