This is a mistake that many people make as they think that it will help to make things easier once they pass away. The issue is that if the child is added to the property before the parent’s passing, the child’s basis in the property becomes the parent’s basis in the property from when they originally purchased the property. For example, if a parent purchases a property for $100,000 in 1990, adds their child in 2020, and the parent passes away in 2025 and the fair market value of the property is $800,000, when the child goes to sell it, they would be taxed on the $700,000 capital gains. If the home transfers to the child at the time of the parent’s passing, the child’s basis would be $800,000, so there would be no capital gains tax needed to be paid.

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An option that the parent may want to consider is A Lady Bird deed, also known as an enhanced life estate deed. This is a legal document that allows a property owner to transfer ownership of their property to a designated beneficiary upon their death, while retaining full control and use of the property during their lifetime. It's a way to avoid probate and ensure the property passes directly to the beneficiary. Lady Bird deeds can help individuals qualify for Medicaid by keeping the property out of their estate, allowing them to receive long-term care benefits without sacrificing assets. 

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How it Works:
1.    The property owner (the grantor) records the deed with the county clerk, naming a beneficiary (the person who will inherit the property upon the grantor's death). 

2.    The grantor retains full ownership and control of the property during their lifetime, meaning they can sell, mortgage, or otherwise dispose of it. 

3.    Upon the grantor's death, the property automatically transfers to the designated beneficiary without going through probate. 
 

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