Your Home to Your Heirs – To Deed or to Will

Many people assume that it’s best to put at least one of their heirs on their home title/deed well in advance of their passing to make selling the home easier. And that may be the case, BUT it will cost your heirs thousands of dollars when they go to sell the home. Why you ask….?

Heir on the Title – Capital Gains Tax

When you add your heir to the title, it is the same as gifting the house to them. And for gifting purposes in the tax world, the recipient (the one added to the title) gets the home at the ORIGINAL COST that you paid for it when you bought it, not the current fair market value. And, because it is also not their primary home, they will have to pay capital gains tax of 15-20% on however much the home has appreciated since the day YOU purchased it.

Let’s take an example. You add your son to your title in Jan of 2024 and you bought your home for $200,000 back in 1994.. You pass away five years later in 2029 and your home is now worth $700,000. If your son chose to sell the home immediately, he would have to pay up to $100,000 in Capital Gains Tax.

What should you do?

There are a few options to consider:
Get your will and/or trust completed, outlying who is to inherit the home and leave them OFF of the title. This way, they won’t have to pay any capital gains as they will inherit your home at the fair market value of the day you pass away – therefore erasing all capital gains.

You can get a special ‘Transfer on Death Deed,’ which shows your intention to transfer the property to your heir immediately after you pass away. They don’t own the property until you pass – again, erasing all capital gains – AND it often allows them to avoid probate.
Either option will save your heirs a tremendous amount of money and be relatively simple as long as you have all the proper paperwork in order (Will and/or Special Deed).