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Some parents, for reasons we will analyze, feel compelled to put some or all of their assets into their children's names.

Whether or not it's the "right" thing to do, parents who put assets in their kids' names do it for one of four reasons: (1) tax reasons; (2) protection from nursing homes; (3) lawsuit protection; or (4) probate avoidance. Let's take a closer look.

The bottom line on giving kids assets and taxes? Unless you have a very large estate, there's likely no tax benefit to putting assets in your children's names while you are alive.

Nursing Home Protection. Yes, assets that you put in your children's names while you are alive are protected from your nursing home costs five years after you transfer the assets to your children. However, the family could lose those assets during that five year period if one of the magical five D's occurs to your children: Debt, Divorce, Disabled, Death, or Dumb act. You lose complete control over the assets that you put in your children's names. If you want to protect your assets from nursing home expenses, but retain some control over them, consider a trust that is specifically designed to do that.

Tax Reasons. Many parents mistakenly believe there is a tax advantage of giving $15,000 to each of their children each year. However, if their estate value is below the applicable exclusion amount ($11.4 million for 2019), their children can inherit their estate tax free. In addition, if a parent donates an appreciated asset to a child, the child will be stuck with the parent's capital gains tax basis (carryover basis). But if the child were simply to inherit the appreciated asset, the child would benefit from the stepped-up basis.

Lawsuit Protection. Putting your assets in your kids' names may protect those assets from our future unanticipated lawsuits, but what if your kids' get sued? There are other forms of protection available.

Probate Avoidance. The price you will pay to give up control of all your assets is too costly, versus the probate avoidance benefit that your heirs will achieve when you die. Much has been said and written about using the revocable living trust to both keep control over what you have but eliminate your survivors from having to go through the court-supervised probate process.

One area where I've seen a few folks benefit under the right circumstances by putting assets in their children's names is when the parents have "more than enough " assets to live off of, and the parents want to see their children and grandchildren start enjoying their future inheritance. The parents don't come anywhere close to divesting themselves of everything, but the get to see their descendants go through a "trial run" of the inheritance by putting a small percentage of their assets in the children's name while the parents are alive.

Other than that, I can't think of many reasons where there's a benefit to parents to put assets in their children's names. Can you? Comments welcome.

This post is for informational purposes only and does not provide legal advice. Please do not act or refrain from acting based on anything you read on this site. Using this site or communicating with Rabalais Estate Planning, LLC, through this site does not form an attorney/client relationship.

Paul Rabalais
Estate Planning Attorney
www.RabalaisEstatePlanning.com