Transferring your home to your children during your lifetime can create tax and legal problems that outweigh the benefits, and in many cases, keeping the home in your name or placing it in a properly structured trust leads to a better result under Pennsylvania and federal tax rules. There are, however, situations where an early transfer can make sense, and the right answer depends on how the transfer is structured, your long-term plans for the property, and how taxes will apply once ownership changes.
Why People Consider Transferring Their Home Early
For many families, the home is the largest single asset. Parents often think about transferring it to children to avoid probate, simplify inheritance, or reduce future estate taxes. Others want to protect the property from long-term care costs or make sure it stays in the family.
While these goals are understandable, transferring ownership during your lifetime changes how the home is taxed, controlled, and protected. Once the deed is recorded, you may give up rights you did not intend to lose.
How Stepped-Up Basis Can Save Heirs Money
One of the most important tax considerations is the stepped-up basis rule. When your children inherit your home after your death, the tax basis is generally adjusted to the fair market value as of your date of death.
That matters because capital gains tax is based on the difference between the sale price and the tax basis. A stepped-up basis can significantly reduce or even eliminate capital gains tax when your children sell the home.
If you transfer the home during your lifetime, your children usually receive your original basis instead. That can result in a much larger taxable gain later, especially if the home has appreciated over decades.
Capital Gains Risks When You Transfer During Life
Capital gains exposure is one of the most common reasons lifetime transfers backfire. Consider how this plays out:
- A home purchased years ago for a modest amount may now be worth several times more
- Transferring it by deed passes along the low original basis
- When the children sell, the taxable gain can be substantial
In contrast, holding the home until death often preserves the stepped-up basis and reduces tax liability. This issue alone is enough to warrant caution before signing a new deed.
Joint Ownership With Children: What Can Go Wrong
Adding a child to the deed as a joint owner is sometimes viewed as a simple solution. In reality, it introduces several risks.
Joint ownership can expose the home to a child’s creditors, divorce, or lawsuits. It can also limit your ability to sell, refinance, or change plans without the child’s consent. From a tax perspective, joint ownership does not always provide a full stepped-up basis, which can reduce the benefit you intended to create.
Using a Trust to Transfer a Home More Effectively
For many Pennsylvania families, a trust offers more control and flexibility than an outright transfer. A properly drafted revocable trust can:
- Avoid probate without triggering a lifetime transfer
- Preserve stepped-up basis at death
- Allow you to retain full control during your lifetime
- Set clear terms for how and when children receive the property
Trust planning can also coordinate the home with the rest of your estate plan, rather than treating it as a standalone asset.
Pennsylvania Property Tax and Transfer Tax Considerations
Pennsylvania has its own tax rules that must be considered before transferring real estate. While certain transfers between parents and children may qualify for a realty transfer tax exemption, the exemption is not automatic and must be properly claimed.
Property tax reassessment is another concern. Changes in ownership do not automatically trigger reassessment in Pennsylvania, but they can affect eligibility for certain tax programs or exemptions. Keeping the home in your name or transferring it through a trust may help avoid unintended property tax consequences.
When a Lifetime Transfer Might Make Sense
There are limited scenarios where transferring a home during life can be appropriate, such as certain Medicaid planning strategies or situations involving modest appreciation. These decisions should be made carefully and with a full understanding of the tax tradeoffs.
We often see families focus on one benefit while overlooking another risk. A coordinated plan looks at income taxes, property taxes, control, and long-term goals together.
Making the Right Choice for Your Family
Your home carries financial value and personal meaning. Transferring it to your children without a clear plan can create tax exposure and legal complications that are difficult to undo. We work with clients across Pennsylvania to evaluate whether keeping the home, using a trust, or transferring ownership makes sense based on their goals.
If you are considering transferring your home to your children, the attorneys at Jones, Gregg, Creehan & Gerace can help you weigh your options and structure a plan that protects both you and your family. Reach out before changing title to prevent costly surprises later.