Many parents in the U.S. strive to simplify the process of transferring real estate to their children and consider putting the house in the child’s name during their lifetime. However, this approach can lead to significant financial losses, especially due to tax consequences.
👉 The main mistake — transferring ownership via a will or putting the house in the child’s name during your lifetime.
When you put a house in your child’s name or leave it to them in a will, you not only initiate the probate process, but also expose the property to high capital gains taxes.
Property value appreciation over time 🏠
For example, in California, real estate often significantly increases in value over the decades. If you bought a house for $300,000 and by the time of transfer it’s worth $900,000, the $600,000 difference is considered a capital gain. If children inherit the house via a will, they may be taxed on that gain — especially if the step-up basis rule (adjusting the value to the date of the owner’s death) does not apply.
💡 Therefore, in states like California, where property values are traditionally high, the tax burden from improper property transfer can be especially painful. It’s important to consider regional specifics when planning real estate inheritance.
Inheritance through a will = taxes and losses up to 35%
The probate process can take months or even years. It requires attorney fees, property appraisal, court fees, and possibly capital gains tax. As a result, your children might receive only 65% of the property’s actual value.
✅ The solution — a Living Trust
By setting up a revocable living trust, you retain full control over your home during your lifetime, but ensure its automatic transfer to beneficiaries (your children) without going through court and with minimal taxes. The step-up basis rule is applied — the value of the home is adjusted to the date of your death, and no capital gains tax is charged if the children sell the home shortly afterward.
🔑 Advantages of a trust:
- No probate court involvement
- No attorney or court fees
- No capital gains tax upon sale
- Fast transfer of ownership
- Protection from creditors, divorces, and heirs’ debts
Conclusions
Putting real estate in a child’s name or transferring it via a will in the U.S. is a common but extremely disadvantageous mistake. This approach can lead to substantial tax losses, legal complications, and a reduction of the inheritance by nearly one-third. Instead, it’s better to create a living trust in advance and name your children as beneficiaries — this will ensure a clean and hassle-free inheritance. Don’t risk your loved ones’ future — act wisely.
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