Three Ways to Pass Your Real Property to Your Children | Estate Plan Pros
Three Ways to Pass Your Real Property to Your Children

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Besides retirement accounts, real property typically accounts for the largest portion of most estates.  The question is what is the best way to transfer your home and other real estate assets to your children.  There are three primary ways you can transfer real estate: by deed, by a will, or by a trust. 

Transfer by a Deed

When you put your children’s name on title to your assets the IRS considers this to be a gift.  To avoid gift taxes, you’ll have to consider using the lifetime gift tax exclusion.  For wealthy families who need to consider estate tax planning that is a step that should only be taken with competent legal and tax advice.  For the rest of us, just know that you’ll need to fill out an additional form at tax time.

While this strategy has the advantage of being direct and immediate, it has several large disadvantages.  Because it is a completed gift (yes, in the legal world there are such things as “incomplete” gifts) you are now more financially vulnerable than you were before, and depending on your children’s needs and financial risks they face, your real property could face more danger than before. 

Your child also is at a disadvantage receiving the asset as a gift.  Unlike inheriting a piece of property, assets gifted keep their basis for capital gains tax purposes.  What this means is that if you’ve had a piece of property that you bought twenty years ago that is worth ten times its value now, and your child sells it, their capital gains tax exposure is much higher than if the basis had been reset to current market value when the child inherited the property at your death. 

See also Understanding Basis & Capital Gains Taxes

Transfer Under a Will

By waiting to transfer your property until after your death, your children have the advantage of the step up in basis to current fair market value.  A will lets you specify who your beneficiaries will be.  The disadvantage of a will is that your beneficiaries will have to go to court to probate the will, a process that can easily take more than six months to complete, and cost your beneficiaries thousands in extra attorney and court fees.

Transfer Under a Trust

Like a will, your children inheriting property under a trust will have the advantage of a step up in basis.  And a trust gives you a lot of flexibility in providing extra instructions and protections for your beneficiaries.  Not only that, but your children also completely avoid probate court, saving them the time and expense of probate court. 

Which method of transfer is best for your particular situation can depend on other circumstances.  A conversation with your estate planning attorney can help you evaluate the pros and cons of these and other potential options.

Tags:Living Trust Will Probate

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Erik Hartstrom

Erik is the founder of Estate Plan Pros, a leading estate planning practice in Elk Grove.  Erik’s practice focuses on Estate Planning Law. In Estate Planning, Erik works with clients to make the process simple, so clients can focus on more important things. He is a local authority for specialized estate planning instruments, like Special Needs Trust, Irrevocable Trusts, or other focused documents. Erik has litigated, negotiated, and mediated the gamut of family law cases. With this unique perspective as a family law and estate attorney he can often spot issues otherwise overlooked. Prior to graduating he worked as a legislative analyst for a non-profit organization, and volunteered as a youth counselor. Erik currently participates in local politics and is an active member of his local church. Erik is very happily married and has two young sons. Together, his family loves to get outdoors and enjoy the varied activities the Sacramento region has to offer.


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