I am quite often asked whether it is wise for elderly parents to make a gift of their home to their adult children (sometimes expressed as “putting the house in the children’s names”). It is thought that doing so might save tax, or avoid a liability for care fees.
This posting, and two others which will follow, concentrate on the reasons not to do it.
The King Lear Problem
These first four reasons relate to the difficulty of living in a home owned by someone else, and effectively at their mercy. It is a sad fact that many parents are put into care before they themselves think they are ready for it. At the worst, the children could force you out of the home to sell it from under you. And, even if you trust your children to ‘play the game’, there are at least four ways in which the matter could be taken out of their hands.
1. A child dies before you. In this case the property passes to the child’s executors or administrators, who would need to sell it to realise its value for the beneficiaries of the child's estate. (Unlike the other problems mentioned here, there is some limited action the family can take to try to prevent this: namely the children could make a will giving the property - or a right to reside in it - back to you.)
2. A child loses mental capacity. In this case the child’s assets pass into the control of his or her attorney or deputy, who may need to sell them in order to pay that child’s living expenses, or care fees.
3. A child divorces. In this case your home becomes an asset in someone else’s divorce settlement.
4. A child goes bankrupt. This is probably the worst of these cases, since your home almost certainly would be sold for the benefit of the child's creditors.
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