Most of the time, parents just want to provide for their kids in a way that ensures their children are set up for future success. While helping your children succeed often involves behaviors like emotional support, teaching them responsibility, and raising them to be considerate and socially adept, it also involves financial stability. Parents want to leave their children with an estate that will help them.
And according to Paul Rabalais, of Rabalais Estate Planning LLC, some parents think that putting their assets in their children’s names is what will help the most. But, he argues this is often not a good idea.
There are a few reasons why you might want to put assets in your kids’ names.
- Potential for tax saving
- Potential to get some protection from the nursing home
- In the off chance that they get sued, some people might think their assets are better protected if they put them in their children’s names
- You might think you are helping your kids avoid going through probate court when you die
These are all noble causes, but Rabalais goes on to explain that these might have negative ramifications you should consider.
Tax reasons
This might be surprising, but by putting your assets in your kid’s names, you risk them actually having to pay more than if they inherited your assets in your estate. In instances like stocks and property, you children will actually have to pay a capital gains tax and a property tax, respectively. They will end up paying more money than you would have wanted them to.
In the case of inherited money, you may think that you are avoiding an estate tax. But truthfully, no one’s estate get taxed unless they have millions of dollars in it. So, while your children will not have to pay more by inheriting the average middle-class person’s wealth, it isn’t really worth it to put those assets in their name, either. Overall, there is really no tax advantage to putting assets in your child’s name, and there can actually be disadvantages.
Protection from the nursing home
When you go into a nursing home, some of your assets can be liable to that nursing home and Medicare. Because Medicare will step in to pay for your nursing home costs as a last resort, some people might want to put all their assets in another person’s name long before they need to go to a nursing home.
But you lose control of those assets if your child gets entangled in any of these: debt, divorce, disability, death. All of these are circumstances in which you could lose your assets while you are still alive. If you do want to try something like this, Rabalais suggests putting your assets in trust so that you retain some control.
Lawsuit protection
There are all sorts of reasons to think you might someday get sued. People can accidentally cause car wrecks or work in high-risk jobs. You might think you are protecting your assets in that case by putting them in your children’s names so that you don’t get sued for everything you have. But what if, instead, your child ends up being the one getting sued?
There are other ways to protect your assets in case you get sued, and if this is a concern of yours, you should absolutely consult with a lawyer you trust in order to come up with a solution that works for you.
Avoiding probate
Yes, probate court is universally annoying and inconvenient. But, what’s the bigger hassle: giving up all control of your assets for as long as your live, or having to go through the routine procedure at probate court? Also, this still doesn’t really lead to any tax advantages for your children.
Rabalais says he generally hears people talk about this choice with regret
If people put all their assets in their children’s names without first consulting with a lawyer, there is a lot of room for regret. Rabalais says that he hears this regret from either the parents themselves or one of the children because this action does not always go as planned. Either, siblings have trouble cooperating with sharing these assets, or something happens with a child so that in fact, creditors can try to take your assets too.
It’s always best to consult with an estate planning lawyer before you make a big decision like this.
And, Rabalais suggests doing some soul-searching beforehand and trying to understand exactly why you might be wanting this. Most legal experts will tell you that putting your assets in your child’s name in this manner is mostly a bad decision. There’s plenty of ways to help your children inherit your estate without any consequences, and speaking with an expert will help you figure that out for yourself.
Check out the video below to learn more about why you should reconsider putting your assets in your child’s name.
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