A client came to me last week with what he thought was a simple plan. “Russel,” he said, “I’m just going to sign the deed to my Manhattan apartment over to my son. That way, the asset is out of my name, and we avoid estate taxes, right?”
I understand the impulse. It feels direct and clean. On the surface, it seems like a straightforward way to pass on your most significant asset—your home—to the next generation. But in my decades of practice, I’ve seen this “simple” strategy create profound and often irreversible problems for New York families. That gift is a legal transfer with consequences that ripple through tax law, asset protection, and your own personal security. It is rarely the prudent path.
The Hidden Costs of an Outright Gift
When you sign that deed, you are not just transferring property; you are giving up control. Completely. The home is no longer yours. While you may have a wonderful relationship with your children, life is unpredictable. What happens if your child goes through a contentious divorce? Your home is now a marital asset subject to division. What if they face a lawsuit or bankruptcy? Creditors can place a lien on the property—your former property.
Beyond the loss of control, there are significant tax implications. First, a transfer of this value is a taxable gift. While the federal gift and estate tax exemption is high (over $13 million per person in 2024), filing a gift tax return is required. Using that exemption during your lifetime reduces the amount available to shelter your estate from taxes upon your death.
The more immediate financial hit, however, is capital gains tax. When you gift a property, the tax basis—the original purchase price—transfers to your child. Let’s say you bought your Brooklyn home in 1990 for $200,000. Today, it’s worth $2.5 million. If you gift it to your daughter and she decides to sell, her cost basis is your original $200,000. She would face capital gains tax on a $2.3 million profit. In contrast, if she inherits the property at your death, the basis “steps up” to the fair market value at that time. She could sell it for $2.5 million and owe virtually nothing in capital gains tax.
Medicaid and Long-Term Care Considerations
Another critical risk involves future long-term care needs. Many families eventually rely on Medicaid to cover the staggering costs of nursing home care. To qualify, an individual must have limited assets. When you apply, Medicaid performs a five-year “look-back” at your financial history.
If you gave away your house within that five-year window, Medicaid will impose a penalty period, rendering you ineligible for benefits. This can be devastating for families, forcing them to pay out-of-pocket for care they assumed would be covered. Transferring your primary residence is one of the most common mistakes that jeopardizes Medicaid eligibility.
This is about being a deliberate steward of your legacy. The law itself demands this level of intention. New York’s Real Property Law §240-c, for example, requires plain language in deeds—a recognition of the gravity of the transaction. The strategy behind the transfer deserves the same deliberation.
A Better Path: Using Trusts for Stewardship
What is the alternative? How can you protect your home for your children without exposing them—and yourself—to these risks? The answer usually involves a trust.
Specifically, an Irrevocable Trust can be structured to own the property. You transfer the home into the trust, and after the five-year Medicaid look-back period has passed, the asset is generally protected from nursing home costs. You can continue to live in the home and even retain certain tax benefits, like the STAR exemption.
Key Advantages of a Trust Over a Gift
- Control: As the creator of the trust, you set the rules. You appoint a trustee—a fiduciary bound by law to act in your beneficiaries’ best interest—and dictate how the property is to be managed. This prevents the asset from being lost in a child’s divorce or to their creditors.
- Tax Efficiency: When structured properly, the home can remain within your estate for tax purposes, allowing your children to receive the step-up in basis at your death and avoid the capital gains trap.
- Asset Protection: The trust, not your child, owns the home. This creates a powerful shield against unforeseen personal and financial challenges your children might face.
This is what we mean by stewardship. It’s about more than just avoiding taxes; it’s about creating a durable, protective structure that ensures your legacy passes to the next generation intact and as intended.
The impulse to take simple action is understandable, but when your family’s home is at stake, the most prudent course is one of deliberation. Before you consider changing the name on a deed, the first step should be to map out the potential consequences. My firm can begin this process with you by conducting a preliminary review of your assets and family objectives.
