Many Ohio homeowners wonder about the best way to transfer ownership of their home to their children. It’s an important question, and in Ohio, there are several legal methods to do so. Each option comes with different rules, tax implications, and planning considerations.
This blog provides an overview of common approaches available in Ohio, but every situation is unique. Anyone considering transferring real estate should speak with an experienced attorney to understand what’s best for their specific circumstances.
Transfer-on-Death (TOD) Affidavit
One common method in Ohio is using a Transfer-on-Death (TOD) Affidavit. This document allows a homeowner to name a beneficiary who will automatically receive ownership of the property when the homeowner passes away.
The property owner retains full control of the home during their lifetime and can revoke or change the TOD designation at any time. To be valid, the TOD Affidavit must be properly signed and recorded with the county recorder’s office.
Quitclaim Deed
A Quitclaim Deed is another tool that may be used to transfer property. With a quitclaim deed, the owner transfers any ownership interest they have in the property without making promises about clear title.
While relatively simple, this method does not offer the same legal protections for the new owner compared to other types of deeds. Individuals considering a quitclaim deed should be aware of potential title and tax issues.
Warranty Deed
A Warranty Deed offers stronger protection than a quitclaim deed. When using a warranty deed, the property owner guarantees they have clear title to the home and will defend the title against any future claims.
Transferring property by warranty deed may involve additional steps, such as obtaining title insurance or conducting a title search.
Revocable Living Trust
Some homeowners place their property into a Revocable Living Trust. This approach allows the owner to maintain control over the home during their lifetime and avoid probate when the property passes to beneficiaries after death.
A revocable trust offers flexibility, as the terms can typically be changed or revoked at any time before death or incapacity.
Irrevocable Trust
An Irrevocable Trust is another tool used in estate planning. With an irrevocable trust, the homeowner transfers ownership of the property into the trust and gives up direct control.
Irrevocable trusts may offer benefits for asset protection or Long-Term Care Medicaid planning.
Gifting Property and Important Tax Considerations
It is possible to gift a home to a child during the owner’s lifetime. However, this option often raises important tax and Medicaid-related issues.
When property is gifted during life, the child typically receives the donor’s original cost basis for tax purposes. For example, if a parent purchased a home for $100,000 and the home is now worth $300,000, the child’s cost basis would remain $100,000.
If the child later sells the home, they could owe capital gains taxes on the $200,000 increase in value. Depending on the situation, this could result in a significant tax bill.
By contrast, if the child inherits the home after the parent’s death, the property generally qualifies for a step-up in basis. This means the cost basis is adjusted to match the property’s fair market value at the date of death. In the example above, if the home was worth $300,000 at the time of inheritance, the child’s stepped-up basis would be $300,000.
As a result, if the child sells the home shortly after inheriting it, there may be little to no taxable capital gain.
Additionally, gifting property can impact Medicaid eligibility. If long-term care is needed within five years of the transfer, Medicaid may impose penalties that delay benefits.
Because of these important tax and legal implications, homeowners are encouraged to seek professional guidance before deciding to gift real estate.
If you’re thinking about how to transfer your home to your children or want to understand your options under Ohio law, the best place to start is with a conversation. Every family’s situation is different, and careful planning can help avoid unexpected costs or complications down the road. Contact our office today to schedule a consultation and take the next step in protecting your home and your legacy.