What's the problem with giving away assets to my children?

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Isn't this the cheapest estate plan there is? Yes and the most expensive all at the same time.

Often in doing proper elder law/estate planning, we need to transfer assets out of our name and into the name of someone else or into a trust. So, naturally the idea comes up:

"I'll just transfer my house to my kids"
"I'll add my daughter to my checking account"
"I'll gift this stock or investments to my son"

Three issues we talk about in the video.

First is taxes. A gift normally means the person receiving the gift gets the same "tax basis" as the original owner. Example is you bought your house for $100,000 and now it is worth $300,000. If you died and it passed by inheritance (or the right kind of trust) then your children would get a "step up" in tax basis to the fair market value which is $300,000. So they could sell it the next day and pay no taxes.

But if you give it away, then your kids take it at $100,000 basis and when they sell it for $300,000, they may be paying taxes on $200,000 in gains. Taxes can get complicated so get with your tax expert but hopefully this gives you a feel for how this "cheap" solution can be very expensive.

Second, let's talk about creditors. If you give assets to your kids, and they find themselves in a lawsuit situation with creditors, then those creditors can ultimately get the gift that you made. The fundamental rule of asset protection is whatever you can reach in and grab of your stuff, so can your creditors and predators. Same with your kids -- whatever they own and control (and if they are a joint or sole owner then they own and control) their creditors have access to it.

Third, predators include divorces, lawsuits (car wrecks, business deals, etc), your child having long term care needs, etc. A predator can reach whatever your child owns -- and they don't care what the "purpose" or intent was in giving the asset to your child. All that matters is your child owns it.

There are options to transfer assets and avoid some or all of these issues. Some are fairly involved and some are not.

Just giving assets away, however, is rarely a good idea unless this is part of a well thought out plan.

If you have any questions about Estate Planning or Elder law (Medicaid, Special Needs, or VA Pension), feel free to give us a call at 205-879-2447 or contact us through our website http://www.alabamaelderlawyer.com/con....

John G. Watts
Watts & Herring, LLC
Birmingham and Madison Office in Alabama
We represent consumers from all parts of Alabama

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"No representation is made that the quality of the legal services to be performed is greater than the quality of legal services performed by other lawyers."