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Owning a home is one of the most significant financial and personal investments many of us make. Deciding how to pass it down to children or grandchildren can bring up a mix of emotions—pride, responsibility, and sometimes uncertainty. Louisiana law provides several ways to transfer real estate, each with different benefits and potential drawbacks. Some options allow you to keep control during your lifetime, while others focus on reducing taxes. The right approach depends on your family’s needs and long-term goals.
Leaving the House in a Will
A will is one of the most common ways to pass down a home in Louisiana, allowing you to maintain full ownership and control during your lifetime while deciding who will inherit the property. Transferring a home through a will typically requires succession, which is the legal process of settling an estate. If multiple heirs inherit the home, disagreements may arise over whether to sell or keep it. Unresolved debts, property expenses, or legal challenges could also complicate the process.
On the positive side, your heirs may benefit from a step-up in basis, which adjusts the home’s value to its fair market price at the time of your passing. This can significantly reduce capital gains tax if they sell the house, as they will only owe taxes on any increase in value after they inherit it, rather than from when you originally purchased the home.
Gifting the House During Your Lifetime
Transferring your home to a child or grandchild while you are still alive is a straightforward way to ensure they receive the property. Louisiana law allows homeowners to gift real estate through an act of donation, which immediately transfers ownership. This method comes with several tax implications. The recipient inherits your original cost basis, meaning if they sell later, they could face significant capital gains tax on the home’s appreciation. Federal gift tax rules may also apply if the home’s value exceeds federal exclusion limits.
Another concern is Medicaid eligibility. If you need long-term care, gifting a home within five years of applying for Medicaid could result in penalties. Additionally, once you gift the house, you lose control over it, which may not be ideal if your financial or living situation changes. To maintain some rights, you may consider retaining a usufruct, allowing you to live in the home for the rest of your life while still gifting ownership.
Using a Life Estate Deed
A life estate deed allows you to transfer ownership of your home while keeping the right to live in it for the rest of your life. In Louisiana, this is done by creating a usufruct and naked ownership arrangement. You keep the usufruct, meaning you can live in, use, and even rent out the home, while the naked owner—your chosen heir—receives full ownership upon your passing. This method ensures the home transfers automatically, avoiding the need for succession with respect to the property.
One significant benefit is the step-up in basis, which can reduce capital gains taxes if the heir sells the home after inheriting it. However, once you establish a life estate, you lose the ability to change your mind without the heir’s consent. If circumstances change and you want to sell or mortgage the home, the naked owner must agree.
This option works well for many families, but it requires careful planning to ensure it aligns with your long-term goals.
Transferring the House to a Trust
Placing your home in a trust allows you to control how and when it transfers to your heirs. A revocable trust keeps you in control during your lifetime, letting you change or revoke it at any time. When you pass away, the home automatically transfers to the beneficiaries without court involvement.
An irrevocable trust offers additional benefits, such as asset protection and Medicaid planning. Because you no longer legally own the home, it may not count toward Medicaid eligibility. It also protects the property from certain creditors. However, once the home is placed in an irrevocable trust, you cannot easily take it back or make changes.
Both types of trusts allow heirs to receive the property with a step-up in basis, minimizing capital gains tax if they sell later. While trusts require legal setup, they offer long-term benefits for estate planning.
Choosing the Right Option for Your Family
Deciding how to pass your home to the next generation requires careful thought. Whether you prefer to maintain full control or minimize tax burdens, Louisiana law provides several ways to transfer property. Each option has advantages and potential drawbacks, so it’s important to choose the right fit for your situation.At Kallio Law Firm, LLC, we will help you create a plan that protects your home and your loved ones. Contact us today to discuss your estate planning goals and find the best way to secure your family’s future.
