Why Giving Your Real Estate to Your Child During Your Lifetime May Not Be a Good Idea

Transferring your real estate to your child while you are still alive might seem like a smart move. Many people believe it helps avoid probate or makes it easier to qualify for Medicaid. But in reality, this decision can cause unexpected problems. It might disqualify you from Medicaid, create legal risks, and even cost your child more in taxes. I want to share why handing over your property early is often not the best choice and what you should consider instead.

Eye-level view of a residential house with a "For Sale" sign in front

The Common Reasons People Transfer Property Early

Many families think giving real estate to their children during their lifetime solves two big issues:

• Avoiding probate: Probate is the legal process that happens after someone dies to transfer their property. It can be slow and costly. People believe transferring property early means their children get it right away without probate.

  
  

• Qualifying for Medicaid: Medicaid helps pay for long-term care, but it has strict rules about assets. Some think giving away property will lower their assets enough to qualify.

  
  

These ideas sound good, but they don’t always work out as expected.

How Early Transfer Can Disqualify You from Medicaid

Medicaid has a look-back period, usually five years. This means if you give away property or money within five years before applying, Medicaid may deny your application or delay benefits.

When you transfer your home to your child, Medicaid sees it as a gift. If this happens within the look-back period, you could lose coverage for months or even years. This can leave you without help paying for care when you need it most.

Even if you think you won’t need Medicaid soon, health changes can happen unexpectedly. Losing Medicaid eligibility can cause serious financial stress.

The Tax Consequences for Your Child

When you pass away, your heirs usually get a step-up in basis for inherited property. This means the property's value is reset to its market value at the time of your death. It helps reduce capital gains taxes if your child sells the property later.

If you give the property to your child while you are alive, they inherit your original purchase price. This can be much lower than the current market value. When they sell, they may owe a large capital gains tax on the difference.

For example, if you bought a home for $100,000 and it’s worth $500,000 now, your child’s tax basis is $100,000 if you gift it. If they sell for $500,000, they pay tax on $400,000 gain. If they inherit it, the basis steps up to $500,000, so no capital gains tax if sold immediately.

This tax difference can cost your family tens of thousands of dollars.

Legal Risks When You Transfer Property But Keep Living There

Sometimes parents transfer some or all of their interest in their property but continue living in it. This can create legal problems:

• Liability for the child: If the parent lives there rent-free, the child becomes the legal owner responsible for property taxes, maintenance, and liability. If someone gets hurt on the property, the child could be sued.

  
  

• Confusion about ownership: Sharing ownership or transferring only part of the property can lead to disputes. If the parent needs to move to a care facility, the child might face challenges managing or selling the property.

  
  

• Liability for the Parent: A parent who co-owns property may be liable to their child's creditors or influenced by the child's decisions if the parent no longer holds ownership of the property.

  
  

These risks can cause family tension and legal headaches.

Close-up view of legal documents on a desk.

What Are Better Alternatives?

Instead of transferring your property early, consider these options:

• Create a living trust: A trust lets you keep control of your property while alive. After you pass, the property transfers to your child without probate. This avoids many problems of gifting.

  
  

• Use a transfer-on-death deed: In Washington State, you can use a deed that transfers property after your death. This avoids probate but keeps you as the owner while alive.

  
  

• Plan with an estate attorney: A professional can help you understand Medicaid rules, tax consequences, and legal risks. They can design a plan that fits your needs and protects your family.

  
  

For example, Bryan & Jetter, PLLC offers estate planning services that help you create trusts and wills tailored to your situation. Their team understands Washington State laws and Medicaid rules, so you get clear advice and peace of mind. You can learn more about their estate planning services here.

Why Professional Legal Help Matters

Estate planning is complex. Mistakes can cost you money, cause legal trouble, or hurt your family relationships. Working with a law firm experienced in Washington State estate and Medicaid law is important.

Bryan & Jetter, PLLC also handles personal injury and workers' compensation cases, so they understand how health and legal issues affect your life. Their compassionate approach means they listen carefully and explain your options clearly.

If you want to protect your home and your family’s future, consulting with a trusted attorney is the best step.

High angle view of legal documents and a pen on a wooden table

Final Thoughts on Transferring Real Estate Early

Giving your real estate to your child during your lifetime might seem like a good idea. But it can disqualify you from Medicaid, create tax problems for your child, and cause legal risks if you keep living there or maintain partial ownership.

Instead, use tools like living trusts or transfer-on-death deeds. These options help avoid probate without the downsides of gifting. Always get professional legal advice to make sure your plan fits your needs and protects your family.

If you want to explore your options, consider reaching out to Bryan & Jetter, PLLC. Their estate planning services can guide you through the process with care and expertise.

Taking the right steps now can save your family money, stress, and legal trouble later. Protect your home and your loved ones by planning carefully.

Disclaimer: This post is for informational purposes only and does not constitute legal advice. Please consult a qualified attorney for advice specific to your situation.