Why Giving Your Property To Your Children May Be A Bad Idea

Here is the scenario—the parents are getting older and they are concerned about having someone to manage their assets if they become unable to do it themselves. Some consider just giving it to a child or children—which is probably a legal option—but is it a wise option?

In 2020, you can give away as much as $11.58 million dollars without gift tax implications for you or the recipient. But just because you can—does that mean you should? There is a maxim in the estate planning community that states, “Never give away anything there is any possibility you will ever need any time in the future."

Balancing concern for management, a heart for generosity, and the desire to care for those who are dependent can be tricky. We must consider our own care and the care of our dependents—they are part of our stewardship responsibilities.

As you consider your legal right to give property away against your stewardship responsibilities—perhaps the Five D’s will be helpful. Each represents a reason that you may choose to not transfer your assets to your children just yet.

1. Death: Suppose you transfer property to a son, assuming he will care for you in your old age. What if he precedes you in death? Property you gave to him may be distributed to his beneficiaries, who may not assume responsibility for your care.
2. Divorce: Never a pleasant subject, however it is important that we be realistic. Many divorce settlements are financially devastating. If you transfer property to a daughter with the understanding that she will care for you for life, but her marriage ends in divorce—she may lose assets that were to provide for your care.
3. Disaster (financial): You have transferred property to your daughter, and she experiences a reversal of fortune reducing your gifted asset to less than enough to care for you. She may become financially unable to fulfill her obligation.
4. Disability (illness): What would happen to your care if you transfer property to a family member who later becomes seriously ill or disabled? All the assets they have available—including those earmarked (because they used to be yours) for your care—may be legally subject to inclusion to pay their expenses.
5. Desertion: Unfortunately, family rifts occur—even among the closest relationships. The danger when property is transferred to family members is that they may choose to use the property for their own enjoyment rather than fulfill their responsibilities. Meanwhile, Mom and Dad are forgotten and left in need.