Should you deed property to your children?


As a general rule, you should not deed your property to your children during your lifetime. If you do so, you will lose control of it and your child will not receive a step-up basis for capital gains.


Attorney Tom Olsen: Mark, you're on news, 96-5, go ahead.

Mark: Yes. I'd like to ask if a parent wants to pass a piece of property to their child now and not put it in a trust, can they do that? How do they do that and is there any disadvantage in doing that?

Attorney Tom Olsen: Well, if you did it, Mark, you'll be doing it through a deed but Mark, is this a home that you live in or is this another piece of property?

Mark: Another piece of property.

Attorney Tom Olsen: Does your child live on that piece of property?

Mark: No.

Attorney Tom Olsen: What you're thinking about giving it to your child now, while you're still alive. Why would you want to do that?

Mark: Because, let's see. I didn't really think about it.

Attorney Tom Olsen: Mark, here would be the disadvantages to it. Number one, if you give that piece of property to your child now, it is written in stone. You will have lost control over that piece of property. Mark if you tell me, "You know what? I'm going to give this piece of property to my son and a year from now, if I need it back, he will give it back to me." I'd say, "I don't even know your son, Mark, but I don't count on that happening". Number two, there could be negative tax consequences to it. There is value to waiting for your children to inherit your property until you've passed away because if you do so, if they don't get it until you die, they will get what's called a stepped up basis. They're basis for capital gains tax purposes will be the value at the date of your death. If your basis is low but it's a valuable piece of property or stock, then it will serve them to minimize capital gains taxes if they don't get it until you passed away.

If Mark, you give this piece of property to your son during your lifetime, he will inherit your basis. So you may be accomplishing something like avoiding probate, but you may be causing your son a lot more in capital gains taxes. Mark, I hope that's answered your question. I do want you to think long and hard about doing this. Mark, if you need some help or if you need some more considerations, pros and cons, I invite you to call my office next week, I'd be happy to talk to you about it. Call us in Orlando.