A couple from Queens sat in my office last week with what they thought was a simple plan. They bought their home in 1985 for about $90,000. Today, it’s worth nearly $1.5 million. Their goal was to put the house in their son’s name now to avoid “inheritance taxes” and simplify things when they pass away. It’s a question I hear often, and the impulse comes from a good place—the desire to create a smooth transition for the next generation.
But this simple act of changing a name on a deed is one of the most common and damaging mistakes I see. The strategy isn’t elegant. It’s a trap, baited with good intentions but sprung with definite tax bills, a loss of control, and exposure to risks that can undermine a family’s financial foundation.
The Tax Myth: Estate Tax vs. Capital Gains Tax
Many families I speak with are trying to avoid the wrong tax. New York does not have an inheritance tax—a tax paid by the person receiving the assets. We have an estate tax, paid by the estate of the deceased before assets are distributed. For most New Yorkers, it’s a non-issue. As of 2024, the New York State estate tax exemption is $6.94 million per person, governed by Article 26 of the New York Tax Law. If your total estate is below that amount, you owe no state estate tax.
The real tax danger in gifting your home isn’t the estate tax. It’s the capital gains tax your child will eventually face.
When you inherit a property, you receive a “step-up in basis.” The property’s cost basis—the value from which gains are calculated—is “stepped up” to its fair market value on the date of the original owner’s death. Using our Queens family as an example, if their son inherits the $1.5 million home, his cost basis becomes $1.5 million. If he sells it the next day for that price, his capital gain is zero. He owes no tax.
Gifting the house during your lifetime creates the opposite result. When you give property to a child, they also receive your original cost basis—in this case, just $90,000. If the son later sells the home for $1.5 million, his taxable capital gain is $1,410,000. At current federal and state tax rates, that could trigger a tax bill of hundreds of thousands of dollars. The attempt to avoid a potential estate tax, which they likely wouldn’t have owed anyway, creates a definite and substantial income tax liability for their child.
Beyond Taxes: The Human Cost of a Simple Deed Transfer
The financial fallout is only part of the risk. Transferring ownership of your home is an abdication of control. Once the deed is in your child’s name, the house is legally theirs. It is not your asset anymore. This introduces three critical vulnerabilities that I have seen play out in painful ways for New York families.
- Loss of Autonomy. You may trust your child completely, but life is unpredictable. If you give them your home, you live there at their pleasure. They could decide to sell it, mortgage it, or even ask you to leave. While it seems unthinkable, family dynamics change, and handing over your primary asset leaves you with no legal recourse.
- Exposure to Your Child’s Creditors. The moment your home becomes your child’s asset, it also becomes exposed to their liabilities. If they are sued, go through a divorce, or file for bankruptcy, the home you live in can be seized to satisfy their debts. A lifetime of work and careful stewardship can be wiped out by a lawsuit or a soured business deal that has nothing to do with you.
- Disruption of Long-Term Care Planning. For many families, the home is a key asset in planning for long-term care. Gifting the house triggers Medicaid’s five-year look-back period. If you need nursing home care within five years of the transfer, the gift can result in a significant penalty period, making you ineligible for Medicaid benefits precisely when you need them most.
A More Prudent Path Forward
The desire to protect your home and pass it on to the next generation is the cornerstone of legacy planning. But a simple deed transfer is a blunt instrument. A trust is a more effective and protective strategy—specifically, an irrevocable trust for asset protection or a revocable living trust for probate avoidance.
A properly structured trust achieves the real goals—avoiding the delays and costs of Surrogate’s Court and ensuring the home passes to your intended beneficiaries—without sacrificing control, creating a massive tax bill for your children, or exposing the property to outside threats.
Before you consider changing the deed to your property, the responsible first step is to model the financial outcomes of that decision. A thorough review of your assets can determine your actual estate tax exposure and calculate the capital gains impact on your children. We can then design a plan that serves your family’s future, not just an outdated idea of tax avoidance.
