Q: I'm going to prepare a will and have a question concerning inheritance tax on my home.
My home is paid off and my son has been living with me for over two years. On my death can I request my home be sold and profits be split between my three children. Would there be inheritance tax on the home? Would it be best to add my son to the title and if so how could I go about doing this. Thank you.
A: You are planning on writing a will. A will is a document that--in Kansas at least--is given no legal effect until it is probated in a court after the person who wrote the will (the “testator”) has passed away. When you pass, and the will is filed with the court and determined to be valid, the terms of the will will control who receives the asset or the proceeds from the sale of the asset. Making a transfer to an adult child while the owner is still living causes the house to be transferred outside the terms of the will. Generally speaking, there are reasons why a person who is planning their estate should pause and think before making such a lifetime transfer. The person receiving the transfer is generally not obligated to share the asset with the persons you direct in your will. The child recipient of a lifetime transfer receives the appreciated property with the same tax basis for capital gains purposes as the person who transferred it, possibly leading to a capital gains liability when the property is sold (as compared to little or none if the house is sold after the death and inheritance). If that person to whom a transfer is made has creditors now or later who are owed money, the asset may be at risk to pay the obligations of the debtor child. [Note: There may be protections afforded by homestead claims, but those are more complex that can be fully described here.] The child (and the child’s present or future spouse) may impede the parent’s ability to sell the property when later needed. There are considerations as to possible future Medicaid eligibility that should be taken into account in establishing a plan.
You should have the advice of an estate planning attorney who can learn about the details of your personal situation and fashion a plan that meets your specific needs. One estate planning tool that might be appropriate for you and an attorney to consider is a revocable living trust. With a revocable living trust, the assets are held for the benefit of the grantor during the grantor’s lifetime, but transfer to the children or other surviving beneficiaries after the owner has passed. The capital gains benefit of a revocable trust is similar to that of a will alone. In certain cases, if the planning is fully effective, the assets may be transferred without having to open a probate estate at all, saving substantial legal and administrative fees.
You should seek the advice of an attorney in putting together your final plan. Someone in a similar circumstance might want to consider a revocable living grust that allows for the son to serve as a trustee for the house. But the sone would be acting as a
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