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Sept. 24, 2022, 6:50 p.m. EDT

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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By CD Moriarty

Dear MarketWatch,

We are a couple in our 80s who have been retired since 1996. We have two children who are residing in two of our houses. We would like to know when we should initiate a transfer of the titles to the children that would be tax-advantageous to them.

Thank you.

The parents

Dear parents:

You are generous to your children, but since the houses are being used by them already, what is the rush is to get the titles into their name?

Your focus on their taxes sounds like a noble reason, but what about what works best for you as a couple? Your financial situation, estate and familial relationships hold the key.

The essential factor is the value of your total assets, then your federal and state estate tax situation and how your will, and trust if you have one, are written. Then there’s Medicaid eligibility rules as well as gift and inheritance tax issues.

Without knowing all your financial details and the state you live in, I can only give you a broad overview of issues to consider. I urge you to consult your accountant, attorney or other adviser.

It’s critical to speak to your children. You want to be clear about what you are giving and why. Most of all, explain the bigger picture and what will be the outcome as inheritance. More than 80% of parents are not transparent with their families about their finances, according to one study .

Without clarity and understanding, your adult children may be confused, expect a larger inheritance or worry about you and your spouse unnecessarily. 

What to consider

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

According to life expectancy tables , the average 80-year-old could live another seven to nine years; however, that does not consider lifestyle, health issues and quality of life. Most financial planners are doing financial projections until age 95 or 100, which strikes me as prudent as people live longer.

Your gifting could affect qualifying for Medicaid. Almost all states have a look-back period of 60-month, though in some states it is shorter. This is to make sure you haven’t gifted assets or sold them below market value in order to qualify for everything from free or reduced rate in-home care to nursing-home payments. Understand your state’s rules before your make a title change.

Even if Medicaid is not an issue, be realistic about the cost of additional home care, assisted living or nursing facilities. Keeping the homes may in the long run give you more resources to pay for that care, if needed.  

On the relationship side, ponder these questions:

  • What is your goal with your children? To help them financially? Make them self-sufficient?

  • How will this impact your other children, if you have any? Or impact each child if these homes are not of equal value?

  • How would you feel if one or both sold their home before you die? 

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