What’s the Right Way to Transfer Your Home to Your Kids | Repair The Roof Podcast

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In this conversation, estate planning attorney Ted Gudorf discusses the complexities of transferring property to children, particularly the pitfalls of gifting a home versus using a trust. He explains how gifting can lead to significant tax liabilities, such as capital gains taxes, and the complications of gift taxes.

Gudorf advocates for the use of trusts as a more efficient and beneficial method for property transfer, highlighting their advantages in avoiding probate, providing tax benefits, and allowing for greater control over inheritance. The discussion emphasizes the importance of evaluating family needs and goals when deciding between these two options.

Key Topics

  • The Dilemma of Gifting Your Home (00:00)
  • Understanding Capital Gains and Gift Taxes (02:57)
  • The Advantages of Using a Trust (06:14)
  • Choosing Between Gifting and Trusts (09:08)

Are You Making a Tax Mistake That Could Cost Your Kids Thousands?

Transferring your home to your children sounds simple, right? Just sign a deed and hand over the keys—no probate, no hassle. But what if this seemingly easy move comes with a hidden financial bombshell?

Many well-intentioned parents unknowingly saddle their kids with massive tax burdens, turning a gift into a costly mistake. The good news? There’s a better way to pass down your home while protecting your family’s financial future. Let’s explore why gifting your home may not be the best option—and how a trust can save your children thousands.

Key Takeaways

  • Gifting a home can lead to unexpected tax liabilities.
  • Capital gains taxes can significantly impact your children's inheritance.
  • A trust provides a step-up in basis for inherited property.
  • Using a trust can help avoid probate and its associated costs.
  • Trusts allow for greater control over property distribution.
  • Gifting may seem simple but can complicate financial planning.
  • Trusts can protect assets from creditors and legal issues.
  • Setting up a trust is an investment in your family's future.
  • Evaluate your family's unique circumstances before deciding.
  • Trusts are beneficial for families at any asset level.

The Hidden Tax Pitfalls of Gifting Your Home

At first glance, gifting your home to your children seems like a smart, hassle-free decision. You avoid probate and ensure they receive the property quickly. But here’s the catch: doing this can create major tax headaches down the road.

Capital Gains Tax: The Costly Consequence

When you gift your home to your children, they inherit what’s known as a carryover basis—meaning their tax basis in the home is the same as yours. Here’s why that matters:

  • Imagine you bought your home for $100,000 decades ago.
  • Today, it’s worth $1 million.
  • If you gift the home, your children’s tax basis remains $100,000.
  • If they sell it, they must pay capital gains tax on the $900,000 difference.

Depending on tax rates, this could mean hundreds of thousands of dollars in taxes—a financial burden most families don’t anticipate.

Now, let’s compare that to inheriting the home through a will or trust. In this case, your children receive a step-up in basis, adjusting the home’s tax basis to its fair market value at the time of your passing. If they sell it for $1 million, there’s no capital gains tax owed—saving them a fortune.

Gift Taxes: A Complicated Process

Gifting a home also has implications for gift taxes. While the annual gift tax exclusion in 2025 is $19,000 per recipient, homes are typically far more valuable. If your home is worth $500,000 or more, you must file a gift tax return (IRS Form 709) to report the transfer.

While no immediate taxes are due in most cases, this reduces your lifetime estate and gift tax exemption (currently $13.99 million in 2025). For families with significant assets, this could impact estate planning down the road.

Why a Trust Is the Smarter Alternative

Instead of gifting your home outright, a trust offers a tax-efficient and seamless way to pass it down to your children. Here’s how it works:

  1. You create a trust with an attorney, specifying how and when your children inherit the home.
  2. You transfer the home into the trust, changing ownership from your name to the trust.
  3. Your children inherit the home through the trust, avoiding probate and maximizing tax benefits.

The Major Benefits of a Trust

✅ Avoids Probate: Unlike a will, a trust allows your home to pass directly to your children without probate, saving time and legal fees.

✅ Preserves Step-Up in Basis: Because your children inherit the home instead of receiving it as a gift, the tax basis is adjusted to the home’s market value at the time of your passing—eliminating capital gains taxes.

✅ Provides Long-Term Control: Want to ensure your home stays in the family? A trust allows you to set rules and conditions for how your children use, sell, or pass down the property.

✅ Protects Against Creditors & Divorce: A properly structured trust can shield the home from your children’s creditors, lawsuits, or divorce settlements.

Is a Trust Right for You?

The choice between gifting your home and using a trust depends on your unique situation. Here’s a quick breakdown:

  • Gifting may work if your home hasn’t significantly appreciated in value and you need a quick transfer.
  • A trust is the better option if you want to:
    • Avoid unnecessary taxes.
    • Prevent legal headaches for your children.
    • Maintain control over how the property is used.
    • Ensure multi-generational family protection.

The Next Step

If your goal is to pass down your home in the most tax-efficient way, protect your children from financial burdens, and maintain control over your family’s legacy, setting up a trust is the best move.

Ready to learn more? Take the next step and consult with an estate planning professional to create a customized plan for your family’s future.

Final Thoughts: Protect Your Family’s Future

While gifting your home may seem simple, it can lead to massive tax consequences and legal complications. A trust provides a smarter, more efficient solution—ensuring your children inherit your home without financial headaches.

*This blog post is based on the insights shared by Gudorf Financial Group. For personalized advice tailored to your unique circumstances, always consult a financial, legal, or tax professional.*

Transcript: Prefer to Read — Click to Open

Ted (00:00.078)

Are you thinking of gifting your home to your kids? Before you do, here’s a question. Would you rather save time now but leave your children with a massive tax bill or choose a smarter option that protects your family’s financial future? Most people get this wrong, but I want to show you the right way. Hi, I’m Ted Gudorf, a board certified estate planning attorney with over 37 years of experience helping families like yours navigate

the tricky decisions around passing down property. In this video, I’ll explain why gifting your home might not be the easy solution you think it is, and how using a trust could save your family thousands in taxes and legal headaches. Stick around, because by the end of this video, you’ll know exactly which approach is best for your situation and how to avoid costly mistakes. At first glance,

Gifting your home to your children might seem like a quick and easy solution. It’s a straightforward process, right? Just sign a deed, transfer ownership, and you’re done. Plus, it avoids probate, which can be a time consuming and expensive legal process. For many families, this simplicity is incredibly appealing. After all, who wouldn’t want to save their loved ones from the hassle of probate court proceedings? But here’s the catch.

While gifting might seem like the easy way out, it can trigger some serious financial consequences that most people don’t realize until it’s too late. One of the biggest pitfalls, capital gains taxes. Let’s break down how this works so you can understand the hidden costs behind what feels like a simple solution. Here’s what gifting your home can become a costly mistake. When you gift a property to your children,

they inherit what’s called a carryover basis. This means their tax basis in the property is the same as yours, which is likely far less than the current market value of the home. For example, if you purchased your home decades ago for $100,000 and now let’s say it’s worth $1 million, your children’s tax basis would still be $100,000 if you gifted to them.

Ted (02:27.223)

Imagine your children decide to sell the home. They’ll be hit with capital gains taxes on the $900,000 difference between the sale price and the original basis. Depending upon the tax rate, this could cost them hundreds of thousands of dollars. Now, contrast this with a situation where your children inherit the property through a will or a trust. In that case, they receive a

step up in basis, which adjusts the tax basis to the property’s current market value at the time of your death. If they sell it for $1 million after inheriting it, there’s no capital gains tax to worry about. This key difference could mean saving your family a fortune. Now, beyond capital gains taxes, gifting your home can also bring complication with gift taxes.

While most people are aware of the annual gift tax exclusion, currently $19,000 per recipient in 2025, many don’t realize how exceeding this limit can trigger some additional tax obligations. If the value of a home is greater than the annual exclusion, you’ll need to file a gift tax return to report the transfer. This involves completing IRS Form 709, which records the gift’s value.

and how it applies to your lifetime gift and estate tax exemption. While no taxes are due immediately in most cases, filing ensures the IRS tracks how much of your exemption you’ve used. It’s straightforward process, but working with a tax professional can help ensure accuracy and prevent errors. For example, if your home is worth $500,000, you’re far above the $19,000 exclusion.

While it’s true that you won’t owe immediate gift taxes, in most cases, the value of the gift reduces your lifetime estate and gift tax exemption, which is currently set at $13.99 million in 2025. This might not affect everyone, but for families with significant assets, it can eat into what’s available to protect other parts of your estate.

Ted (04:48.227)

The paperwork and potential tax implications can quickly turn what seemed like an easy solution into a burdensome process. This is why many families find that a trust provides more streamlined and tax-efficient way to transfer property while avoiding these pitfalls entirely. Transferring your home into a trust is a straightforward process when done with professional guidance. First, you’ll need to establish the trust itself.

which involves working with an attorney to draft the necessary documents. Once the trust is created, the next step is to transfer the deed of your home into the trust. This involves preparing and recording a new deed with your local county recorder’s office that names the trust as the property owner. It’s important to note that you’ll remain in control of your home while it’s in a revocable trust, and the transfer won’t affect your ability to live there

or make decisions about that property. Your attorney can ensure the transfer is handled correctly and that the trust aligns with your overall estate plan. Using a trust to transfer your home can solve many of the problems that gifting creates. With a trust, you can ensure your children inherit your property without triggering unnecessary taxes or headaches. One of the biggest advantages is that a trust allows your home to bypass probate entirely.

transferring ownership seamlessly to your beneficiaries according to your instructions. More importantly, when your children inherit the property through a trust, they receive the all-important step-up in basis. This means that the home’s tax basis is adjusted to its fair market value at the time of your death. Additionally, any future appreciation of the home’s value while it’s in the trust can still benefit your heirs. If the property increases in value after being placed in the trust,

Your children won’t owe taxes on the gain accrued before they inherit it, ensuring they can sell the home with minimal tax consequences. So if the house is worth $1 million at that point and your children sell it for the same amount, they owe nothing in capital gains taxes. That’s a huge financial relief compared to the tax burden associated with gifting. Now, another benefit of using a trust is the control it gives you.

Ted (07:13.443)

you can specify how and when your children receive the property. Trusts also simplify multi-generational planning. For example, you can set up provisions that allow your grandchildren to benefit from the property while keeping it protected from creditors, divorces, or lawsuits. This ensures the property stays within the family and continues to serve future generations, preserving your legacy and providing long-term security. For example,

If you have concerns about their financial habits or want to ensure the home remains in the family, you can set conditions for its use or sale. This level of customization provides peace of mind, knowing your wishes will be honored and your children will be protected from making costly mistakes. While setting up a trust involves some upfront cost and legal work, it’s often a worthwhile investment. The savings and taxes and probate fees

and the ability to avoid legal disputes make it a much better long-term solution for passing on your home. When it comes to transferring your home, the choice between gifting and using a trust depends on your family’s unique circumstances. Let’s break it down. Gifting might work if your home’s value is less than the purchase price, and you need a quick and simple transfer without additional conditions. But remember, this approach comes with risks.

like carryover basis and the potential for significant capital gains taxes if your children decide to sell the property if it is appreciated in value. On the other hand, a trust offers far more advantages. It allows your family to avoid probate, ensures your children benefit from a step up in basis, and gives you greater control over how and when the property is passed down. Whether you want to protect your children from unnecessary taxes or set rules for how the home should be used,

A trust is the tool that allows you to design a plan tailored to your needs. Let’s quickly recap the key points we’ve covered. While gifting your home might seem like a simple solution, it can create significant financial challenges for your children, including steep capital gains taxes and the hassle of filing gift tax returns. On the other hand, transferring your home through a trust not only avoids probate, but also provides your family

Ted (09:38.009)

with valuable tax benefits, like the step-up in basis. Plus, it gives you greater control over how and when your property is passed down. So what’s the next step? Well, start by evaluating your family’s specific needs and goals. Do you want to ensure a smooth, tax-efficient transfer? Would you like to protect your children from future financial headaches? If the answer is yes, then setting up a trust could be the best move for your family. But what if you’re wondering whether trust

are only for the wealthy. That’s a common misconception. Click the video on your screen now to find out why trusts aren’t just for the rich and how they can be a powerful tool for families at any asset level.

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