Quick Answer
Yes, you can give half your house to your child while you are still alive. There are a few ways to go about doing this:
- Add your child’s name to the property deed as a joint tenant – This makes you and your child equal owners of the home. When one joint tenant dies, their share automatically goes to the surviving joint tenant.
- Transfer half ownership of the home to your child via a quitclaim deed – This immediately gives your child legal title to half the house. You retain your half ownership until you pass away or decide to gift it.
- Put your half of the home into an irrevocable trust – You transfer legal ownership into a trust that names your child as the beneficiary. You still control the home while alive but your share goes to the child when you die.
There are pros and cons to each approach. Consulting an estate planning attorney can help you choose the best option given your specific situation and goals.
Can You Legally Give Half Your House to Your Child?
Yes, there are several legal ways to gift half your house to your child either now or in the future. However, there are restrictions and tax considerations to keep in mind.
Adding Your Child to the Property Deed
One way to give your child half the house is to add their name to the deed as a joint tenant. This makes you and your child equal co-owners of the property.
Some key things to know about joint tenancy:
- You retain full access and control of the home during your lifetime.
- When one joint tenant dies, their share passes automatically to the surviving tenant. This avoids probate.
- Adding a joint tenant is considered a gift for IRS purposes. So if the home is worth $500,000 and you add your child, you’ve legally gifted them $250,000. This could trigger gift taxes if over the annual exclusion amount.
Overall, adding your child to the deed as a joint tenant immediately gifts them half interest in the home. But you maintain equal rights to use and control the property.
Transferring Partial Ownership via Quitclaim Deed
Another option is to execute a quitclaim deed to convey half ownership of the home to your child.
With a quitclaim deed:
- You retain your half interest in the home until you gift it or pass away.
- Your child has immediate legal title to their gifted half interest.
- You can restrict their rights, like preventing sale without your permission.
- A gift tax may still apply just like with joint tenancy.
The main difference from joint tenancy is your child has legal ownership of their half interest right away. But you retain exclusive rights to your remaining half ownership.
Putting Your Half Into an Irrevocable Trust
A third option is to put your half ownership of the home into an irrevocable trust that names your child as beneficiary.
Some key features of using an irrevocable trust:
- You transfer legal ownership of your share to the trust while retaining use of the home.
- You can remain trustee to control the home during your lifetime.
- The value of your half is removed from your taxable estate.
- There is no gift tax since you still control the assets and gifting occurs later.
This approach lets you gift half the house tax free at the time of your death. But you still control your share while living.
What Are the Tax Implications?
Gifting half your house to your child may trigger federal gift taxes or impact your estate taxes later on. Here are some key tax considerations:
Federal Gift Tax
The IRS considers gifting half a house to be the same as gifting the equivalent cash value. If the gifted amount exceeds the annual exclusion of $16,000 per recipient, you must file a gift tax return.
You won’t actually owe gift taxes until the lifetime exemption of over $12 million is exceeded. But any gift that requires reporting reduces your estate tax exemption later on.
Adding a child to the deed, giving them a quitclaim deed, or transferring to an irrevocable trust all exceed $16,000 with a home worth over $32,000. So some type of gift tax reporting is likely required.
Potential Reduction in Step-Up Basis
Another tax consequence is losing the step-up basis when gifting part of a home.
Example:
- You purchased a home for $200,000 years ago.
- It’s now worth $500,000.
- You gift half to your child either now or later.
- Your basis in the home was $200,000.
- Your child’s new basis is only $250,000 – half the current value.
Normally a step up in basis to the full $500,000 value would occur if keeping the home until death. But gifting half removes part of the future tax advantage for your child.
Loss of Primary Residence Capital Gains Exclusion
Another factor is the loss of the primary residence capital gains exclusion. This allows you to exclude up to $250,000 in gains per person if you sell the primary residence.
But once you’ve gifted half the home, your child’s portion is ineligible since it’s not their primary residence.
So you may lose up to $125,000 in capital gains exclusion that could have been usable later if the entire home was still yours.
How Does Gifting Half Impact Medicaid Eligibility?
Gifting up to half of your home to your child can also impact Medicaid eligibility if you need long-term care coverage later. Here are some Medicaid implications to understand:
Look-Back Period
Any gifts made within 5 years of applying for Medicaid may be penalized. Large gifts can result in a delay in eligibility by up to 5 months.
So gifting half the home closer to when you may need Medicaid could cause problems. Doing it more than 5 years in advance helps avoid penalties.
Exempted Primary Residence
Your primary residence is an exempt asset when determining Medicaid eligibility. But once gifted, your child’s half of the home value becomes partially countable.
At most, only $585,000 of primary residence value is exempt. But gifting half the home reduces your exempt equity. This could make you ineligible sooner than if the entire home was still in your name.
Restrictions on Sale After Gifting
Another issue is that Medicaid restricts selling a gifted primary residence if the applicant needs coverage within 2 years. Your child may be unable to sell their gifted half unless they pay fair market value back to Medicaid from the proceeds.
This can create problems if Medicaid is needed soon after gifting the home.
What Other Factors Should You Consider?
Beyond the tax and Medicaid impacts, here are some other factors to weigh:
Your Continued Housing Needs
Is this home meeting your needs currently and in the future? Gifting half makes your child co-owner. This gives them certain rights that could disrupt your continued occupancy unless addressed legally.
If you may need assisted living someday, retaining full ownership keeps more options open for financing it.
Other Heirs
Do you have other children or heirs who would be impacted by gifting half the home to one child? This may cause family disputes or require equalization of inheritances elsewhere.
Property Condition and Expenses
Is your home in need of major repairs or renovations soon? Does it have ongoing expenses like HOA fees? With your child on title, these become shared obligations.
If the home needs big updates you can’t afford, it may be better to sell and downsize rather than gift half ownership.
Title and Mortgage Complications
Is there a mortgage or lien on the property? The lender would likely need to approve adding your child to the title or transferring any interest.
And if you transfer half but don’t pay off the mortgage, your child could be liable for that debt. This may require refinancing in only their name to release you from liability.
Marital Property Rights
If your child is married, their spouse may gain certain property rights by being gifted half the home. This depends on whether you live in a community property state.
Your child’s future divorce could lead their ex-spouse to claim part of the home you wanted only your child to have.
Conclusion
Gifting half your house to your child while alive is legally possible using various approaches. Joint tenancy, quitclaim deeds, and irrevocable trusts can all work to immediately or eventually grant them half ownership.
But there are important tax, Medicaid, and family implications to consider first. And the condition of the home as well as obligations attached to it factor into the decision. Overall, consult an attorney experienced in real estate and estate planning to decide if gifting half your home is the right strategy for your situation.