When parents have a home that they would like to one day pass to their children, they may worry about the logistics of this process. It is safe to say that creating an estate plan is the best way to ensure children will one way receive the assets and property that the parents wish to give them. However, within estate planning, there are multiple ways to do this—whether including it in a will for the children to receive upon the individual’s passing or gifting the funds from selling the property. Below are various options on how to pass property onto children—along with the various legal and tax implications of each choice.
Giving a House to Heirs in a Will
The most common way that individuals will leave property to family, especially children, is to bequeath the assets in a will. In doing this, the parents would write in the will that the children are to be given the house after the death of the last parent. One benefit of including property, like a house, in the will is that children will be given the property on a stepped-up basis. This means the property’s value is adjusted to its fair market value and reduces the capital gains tax owed by the beneficiary. However, the beneficiary may still be liable for estate taxes, unlike if the property is gifted in a trust.
Gifting the Property to Children in a Trust
Some parents would rather be able to give their children more money, rather than property after they pass away. The best way to do this is to create a revocable trust rather than leaving the property to the children in the will. In this case, after the parents die, the property is sold, and the funds from the sale are given to the children. For example, the parents would create a revocable trust and name a trustee. Once the parents passed away, the trustee would then sell the property and then the funds from the sale would be given to the listed beneficiaries.
There are multiple benefits to this strategy. First, it avoids the estate and capital gains tax implications. And by selling the property, it can also reduce the chance of fighting amongst siblings—for example, if more than one sibling wants to live in the house, or if there is disagreement about selling the property or not.
Deciding how property will be left to children is an important decision—because of this, it is critical to speak with a knowledgeable estate planning attorney when going through this process.
Contact a Houston Estate Planning Attorney
If you or a loved one needs help crafting an estate plan, contact the Houston estate planning attorneys at McCulloch & Miller, PLLC. Our knowledgeable attorneys have decades of experience creating estate plans for Texans and their families. We will work with you to ensure your estate plan meets your family’s needs and wishes—no matter how complex the situation. To schedule a consultation and to speak with one of our attorneys, give us a call today at 713-333-8900.