Never Transfer Assets Into Your Kids Name

Many people assume that by transferring their assets to their children before they die, they would avoid probate court and make things easier for their children once they pass away. But hold on! Is it really that simple? Let us look at why parents should not transfer assets into their children's names.

Why do people putting Assets into a Child’s Name?

  • Parents who put assets in the names of their children do so for one of two reasons:
    1. Lawsuit Protection- Placing your assets in the names of your children may shield them from future unanticipated lawsuits, but what if your children are sued? Other forms of protection are available.
    2. Tax Reasons- Many parents mistakenly believe that there is a tax benefit. Unless you have a very large estate, there is likely no tax advantage to putting assets in the names of your children while you are still alive.

Why parents should not put Assets into a Child’s Name?

  • There are primarily three reasons:
    1. Need for Your Own Assets- "I have faith in my children." They would never misappropriate my funds or kick me out of my home." Many children, in fact, are trustworthy. Should a parent, however, put their trust in their children's spouses? If a child dies, the estate will most likely pass to her spouse not parents.
    2. Unintended Results- You could lose "your" house if one of your children gets divorced, is sued, or is in financial trouble, because legally, it isn't "your" house.
    3. Income Tax Consequences- Assume you purchased a house for $200,000 and it appreciates to $600,000 in value. If you put the house in that kid's name, they are now liable for the tax on the $400,000 in appreciation. Instead, put the house in a living trust so that when you die, the property passes to them without probate and they receive a step up in cost basis, allowing them to receive the home tax-free.
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