The home is the most valuable asset for many people. Many people consider either adding their adult children to the deed or just gifting it to them outright in an effort to avoid probate. Making such a transfer should result in avoiding probate, at least on the home, however, there are many reasons not to do so. Here are a few:
First, while there may be an understanding between the parents and the children that the transfer is current in name only and the parents will continue to live in the home until they have passed away, technically it is a complete and immediate transfer. This means that if the child who has been given part or complete ownership of the home has any legal issues - divorce, lawsuit, bankruptcy - the home will be part of their countable assets.
Instead, putting your home in a trust with your children as beneficiaries after you have passed away can avoid those problems. The assets in the trust should not be counted as assets owned by that child either during your lifetime or after you have passed away.
Second, many people think that they will be able to qualify for Medicaid (MassHealth) by transferring their home to their children while they are still living. This is true in very limited circumstances. For most people, however, it is only effective if the transfer occurred more than 5 years before the parent applies for MassHealth. All the issues outlined above are also issues in this case.
Again, transferring your home to a specific type of trust can solve this problem. It can protect your home while you are still living and protect it from a claim by MassHealth after you’ve passed away, enabling you to transfer it to your children at that time.
Third, as always, there are tax issues. When you pass away, there is an automatic basis step-up. That means the value of your home increases from the value at the time you bought it to the value at the time of your death. Your children will inherit it at its present value, without paying taxes on the increase in value. Transferring your home to children while you are still living does not avoid that tax.