A client from Brooklyn sat in my office last week with what she thought was a simple plan. “I want to give the house to my son,” she said. “Just sign it over. That way, the state can’t touch it when I’m gone.” Her goal was straightforward—to protect the family home she’d owned for forty years. The problem is, her “simple” plan could have cost her son hundreds of thousands of dollars and jeopardized her own future security.
This idea is one of the most common—and dangerous—pieces of informal estate planning advice I hear. The logic seems sound on the surface. If you no longer own your home, it will not be part of your estate and will not have to go through the probate process in Surrogate’s Court. But this strategy often creates far more problems than it solves. It is a classic case of a well-intentioned move with devastating, unintended consequences.
The True Cost of a “Free” House
When you gift a major asset like a home, you are also gifting your tax basis in that property. Most people miss this critical point. Let’s say you bought your home in the 1980s for $100,000. Today, it’s worth $1.5 million. If you gift it to your child, their cost basis is the same as yours—$100,000.
If they later sell the house for its market value, they will have a taxable capital gain of $1.4 million. The federal and New York State capital gains taxes on that amount can be substantial.
Contrast this with what happens if they inherit the house. When you pass away, the property’s cost basis gets a “step-up” to the fair market value at the date of your death. In our example, their basis becomes $1.5 million. If they sell it for that price, their capital gain is zero. The tax liability vanishes. By trying to avoid probate, you could accidentally hand your child a six-figure tax bill.
New York Estate Tax and Federal Gift Tax Rules
Many people pursue this strategy to avoid New York’s estate tax. New York has no gift tax. However, the state does have a three-year “clawback” rule for large gifts made before death. Under New York Tax Law § 954(a)(3), any taxable gifts you make within three years of your death are added back into your estate to calculate the estate tax due. The attempt to shrink your estate by gifting might not work at all if the timing is wrong.
On the federal level, a gift of a house will almost certainly exceed the annual exclusion amount ($18,000 per person in 2024). Any amount over that requires filing a gift tax return and counts against your lifetime federal gift and estate tax exemption. While the current exemption is high, it is scheduled to be cut roughly in half at the end of 2025. Using up that exemption on a gift that creates other problems is rarely a prudent move.
Losing More Than Just a House
The financial drawbacks are significant, but the personal risks are greater. The moment you sign that deed, you are no longer the owner of your home. You become a tenant. Your child is now the legal owner, and the property is subject to their life events—a divorce, a lawsuit, a bankruptcy. A child’s creditor could place a lien on the home you still live in. While you may trust your child completely, you are also trusting their future spouses, business partners, and financial fortunes.
There is also the critical issue of long-term care. If you need Medicaid to cover nursing home costs, the government performs a five-year “look-back.” Any assets you gifted during that period can render you ineligible for benefits, forcing your family to pay for care out-of-pocket until the penalty period expires. Transferring the house starts that five-year clock, a risk many families cannot afford to take.
A More Intentional Approach to Stewardship
The goal of protecting a family home is a worthy one. It is a cornerstone of a family’s legacy. But the execution must be deliberate. Simply signing over a deed is a blunt instrument that ignores the tax code and surrenders control.
A far better approach often involves using a trust. A properly structured irrevocable trust, for example, can remove the home from your taxable estate while providing clear rules for its use and eventual transfer. It can protect the asset from your children’s creditors and help preserve eligibility for long-term care benefits, all while ensuring the “step-up” in basis is available for your heirs. This is stewardship—making an intentional plan that accounts for contingencies and protects the family for generations.
Transferring a home is a major financial and legal event. Before a deed is drafted or a title is changed, the first step is to analyze the tax basis of the property and its role in your overall estate. We often begin this process with a full property and asset review to map out the consequences of any potential transfer.
