Q: I want to sign my house over to my grandson. Will I have to pay capital gains on my profits when I do this?
A: Why do you want to give your house to your grandson? What financial planning goal are you trying to achieve?
Are you trying to avoid probate taxes down the line? Or, are you hoping to get rid of all of your assets so if you need to go into a nursing home Medicaid will pick up the tab? Or, do you have another place to live and are simply trying to provide a home for your grandson and his family?
I’ve written often about the enormous mistake seniors often make by trying to use a quit claim deed to give their house to a family member before their death. Generally speaking, it’s a far better move to simply leave the house to an individual in your will, or set up a trust naming a specific person as the beneficiary. You’ll pay less in taxes and the move won’t come back to haunt you.
For example, let’s say that you and your grandson have a deal that you’ll give him the house now but he’ll allow you to live there until you die. That sounds great, so you deed over the house. What happens next? Your grandson throws you out of the house he now owns. Or, he sells it out from under you and you suddenly have no place to go.
Worse, if you still have a mortgage on the property and you use a quit claim deed to give him the property, the mortgage stays attached to you. He will own the house free but you will have violated the terms of your mortgage agreement. If the lender finds out, your mortgage loan could be in, and you’d owe the remaining balance in a lump sum immediately.
Still another scenario is that your grandson comes to own the home, then takes out a mortgage on the home and then can’t make the payments and the home is lost to the lender in foreclosure.
If you’re trying to keep your assets from being used to pay a future nursing home bill, and impoverish yourself so you’ll qualify for Medicaid, you should know there is a five-year lookback rule. In other words, a judge can look back at all of the financial dealings you’ve had in the past five years and essentially cancel them if he or she feels you were trying to get out of paying for your own care.
There are other, better ways to protect your assets. I suggest you speak with an elder law attorney who can guide you further.