Many of our clients wish to transfer title to their home in an attempt to avoid probate, save the home, and avoid nursing home expenses. Adding an adult child to your home deed, or giving title to your home outright, is usually not a smart thing to do. Yes, transferring your home to your adult children while you are alive might avoid probate (at least for that asset), but gifting your home also can result in a unnecessary tax bill and put your house at risk if your adult children get sued, divorced, or file for bankruptcy. In addition, depending upon when the transfer is done, you may be making a big mistake if you hope that it will keep your home from being consumed by Title 19 Medicaid or nursing home bills.

If you give your house to your kids after your death, they also get what is called a “step-up in tax basis”. All of the appreciation that occurred while you owned the house would never be taxed. By way of example, if you purchased your home for $25,000.00 in 1970, and the current market value is close to $250,000.00, none of that gain would be taxable if your adult child inherited the house. However, if you sign a Quit Claim Deed to give your adult child your house, and died thereafter, that could potentially mean a tax bill of about $35,000.00.

Some of our clients transfer their home to try to qualify for Medicaid, the government program that pays health care and nursing home bills for the truly indigent. However, gifts or transfers made within five (5) years of applying for Medicaid can lead to a penalty period, and cause our clients to be disqualified from receiving benefits.

If you transfer your home to your adult children now, that home can be exposed to your adult children’s financial problems. Your adult children’s creditors could file liens on “your” home. In the event of a divorce of your adult child, your home could become an asset that must be divided.

There are better ways of transferring title to your home, if that is what you would like to do. There are deeds wherein you can retain a “life estate” in the property, which includes the right to continue living there - and the home would remain in your estate, rather than be considered a completed gift. Another relatively new legal tool is the Wisconsin “Transfer on Death” deed that allows people to leave their beneficiaries their houses upon death - without having to file for probate. Another possible option is a Revocable or Irrevocable Living Trust.

In fact, probating in the State of Wisconsin is nothing to fear. Our office sees avoidance of probate as a big issue in some of our client’s minds - sometimes much bigger than it needs to be. Sometimes we remind our clients “not to let the tail wag the entire dog” - in other words, where a small or unimportant entity (the tail) controls a bigger, more important one (the dog). Use caution against making decisions solely on the basis of probate concerns.