This is a very common question from my Baby Boomer and Senior clients. When I ask them why they would want to do that, the answer is usually about protecting the home from the nursing home.
My opinion on the question is that this is pretty risky. There are a couple of pitfalls to consider:
First, by gifting the house, you give up control. What happens if you and your child have a falling out later? Where does that leave you?
Second, by gifting the house, you subject the assets to your child’s creditors like lawsuit or divorce.
Third, a gift of the house is likely a mistake for capital gains tax purposes. In short, the transfer might cost significant tax dollars when the house later sells.
Fourth, where will you live if your son dies before you? What does his will say? Are you now subject to the whim of your former daughter -in-law? What happens when she remarries?
Fifth, a gift of the house will cause significant problems if you need the nursing home in the next 5 years.
While I understand and share the desire to protect assets from the nursing home, I do not usually recommend to families that outright gifting is the best way to do it. I typically recommend using an Asset Protection Trust to accomplish the same goals with much less risk. To learn more, register for one of our upcoming workshops!