Many people want to avoid Michigan probate. Typically one of the largest assets people have when they pass is their home. There is a poor estate planning "strategy" bouncing around out there that if you add your children to the deed of your house as joint tenants that the house will avoid Michigan probate and everything will be swell. Easy enough, no need to talk to a Michigan estate planning lawyer...
Well, the house WILL avoid probate through this gifting strategy. However, I hope your kids are ready for a hefty tax hit.
Let's look at an example. Say you had purchased your home for $50,000. Now let's say the house is worth $500,000 (in this economy? Let's think positively.) If you were to sell the house today (assuming you could) you would be on the hook for a capital gains tax for the difference in the purchase price and sale price or $450,000 in this situation.
By adding kids to to the title of the property now, after you pass if they sold the house they would owe taxes on $450,000.
Now if you sold your own home, you could get some tax breaks. But not your kids. Your kids would face the capital gains tax that would depend on their tax bracket. This could stick your kids with a tax bill of $67,000 in our scenario.
Well, the house WILL avoid probate through this gifting strategy. However, I hope your kids are ready for a hefty tax hit.
Let's look at an example. Say you had purchased your home for $50,000. Now let's say the house is worth $500,000 (in this economy? Let's think positively.) If you were to sell the house today (assuming you could) you would be on the hook for a capital gains tax for the difference in the purchase price and sale price or $450,000 in this situation.
By adding kids to to the title of the property now, after you pass if they sold the house they would owe taxes on $450,000.
Now if you sold your own home, you could get some tax breaks. But not your kids. Your kids would face the capital gains tax that would depend on their tax bracket. This could stick your kids with a tax bill of $67,000 in our scenario.
There is a better way. Instead of adding your kids and possibly sticking them with a huge tax bill with that house (along with other issues with joint ownership), you could meet with a Michigan estate planning lawyer and create a living trust and place the residence in the trust. Thereby, creating an inheritance situation and not sticking the kids with the hefty tax bill.
-Christopher J. Berry, Esq.
Oakland County Estate Planning Lawyer
