For many Texas homeowners, transferring a home to children during life can feel like a generous and efficient way to secure the family legacy. Parents often hope to avoid probate, simplify the inheritance process, or position themselves for potential long-term care planning by moving the house out of their names.
Beneath that seemingly straightforward decision, however, lie complex tax rules, creditor issues, and long-term control questions that can produce harsh and unintended consequences. What begins as an act of love can ultimately threaten your own housing security, strain relationships among your children, and erode the very wealth you intended to preserve.
The M Firm helps Texans understand the real implications of transferring a residence to children and explores safer ways to integrate the family home into a thoughtful estate plan.
How Ownership Transfer Changes Your Legal Rights
Placing your child’s name on the deed or deeding the home entirely to your children permanently alters your legal relationship with the property. Once the transfer is complete, they own the house, not you. That means any decision to sell, refinance, take out a home equity loan, or change how title is held now requires their participation and consent.
If you continue to live in the home, you do so at their pleasure. A conflict with a child, a shift in family dynamics, or influence from in-laws can all complicate your day-to-day living situation. You also lose the flexibility to respond independently to opportunities or emergencies, such as selling the property to fund a move closer to medical care or to downsize to a more manageable residence.
This loss of autonomy often comes as a surprise to parents who assumed they could “treat it as my home” despite the deed saying otherwise. In reality, the law follows the paper, not the intention.
Your Child’s Financial Problems Become Your Housing Risk
Once your child becomes an owner, your home becomes part of their financial life. If a child later experiences business failure, significant medical bills, or personal debt, creditors can target their ownership interest. A judgment creditor may place a lien on the property, which can interfere with refinancing, block a voluntary sale, or, in extreme cases, push toward a forced sale.
Divorce is another significant concern. If a married child owns all or part of your home, a divorce court may treat that interest as part of the marital estate in some circumstances. Suddenly, your family home becomes a bargaining chip in your child’s divorce negotiations, and a former son-in-law or daughter-in-law may emerge with rights in a house you still occupy.
Even responsible, financially cautious children cannot guarantee that life will never present them with legal or financial crises. When your home is tied directly to their fortunes, you absorb their risk.
The Hidden Cost: Losing the Step-Up in Basis
One of the most overlooked consequences of gifting a house during life is the loss of the step-up in basis for capital gains tax purposes. When you give the property to a child now, that child generally takes your original purchase price and specific improvements as their tax basis. If you purchased decades ago at a much lower cost, the built-in gain can be substantial.
If your child later sells the property, the difference between the sale price and your old, low basis can trigger significant capital gains taxes. By contrast, property that is inherited at your death generally receives a step-up in basis to its fair market value as of the date of death. That higher basis can dramatically reduce, or even eliminate, capital gains if the home is sold soon thereafter.
In a rising real estate market like the Dallas-Fort Worth metroplex, forfeiting this step-up can quietly transfer a large portion of your family’s hard-earned equity to the IRS instead of your children.
Complications with Medicaid and Long-Term Care Planning
Some Texans consider transferring the home to children as part of a strategy to qualify for Medicaid assistance with nursing home costs. Unfortunately, such transfers often have the opposite effect. Medicaid imposes a “look-back” period for asset transfers made for less than fair market value. If you transfer your home within that window and later apply for Medicaid, you can face a penalty period during which you remain ineligible for benefits.
During the penalty period, you must find another way to pay for care, often at a high monthly cost. Families are sometimes forced to liquidate other savings or rely on children to pay privately while waiting for the penalty to expire. What was supposed to “protect the house” may, in practice, destabilize the family’s overall financial plan.
Careful coordination between estate planning and long-term care planning is essential before taking any step that might affect Medicaid eligibility.
Gift Tax Reporting and Documentation Issues
When you transfer a home to a child during your lifetime, the law generally treats that move as a taxable gift. While federal exemptions are high enough that many families will not owe out-of-pocket gift tax, the transfer usually requires filing a gift tax return so the IRS can track how much of your lifetime exemption has been used.
That filing burden can be overlooked or mishandled, especially when transfers are made informally. In addition, because your child receives your basis, maintaining thorough records of your purchase price and improvements becomes essential for their future tax reporting. Missing documentation can saddle them with more tax exposure and fewer options.
Emotional Fallout and Family Tension
A house is rarely just real estate. It is where holidays were celebrated, milestones were marked, and memories were created. Decisions about who receives the home or who is placed on the deed can feel deeply personal to children and other heirs.
Giving the house outright to one child can create resentment among siblings who feel disadvantaged or excluded. Making multiple children co-owners can lead to stalemates over whether to sell, rent, or keep the property in the family, particularly when some siblings live nearby and others live out of state. Those disagreements can sour relationships long after the parents are gone.
Even when parents intend the transfer as an early inheritance, the absence of clear documentation and open communication can leave surviving children disputing what was fair, what was promised, and what the parents truly intended.
Impact on Texas Homestead Protections
Texas offers robust homestead protections for an owner’s primary residence, including protection from many creditors and favorable property tax treatment. When you give away full ownership of your home, your access to those protections may change.
If your children do not live in the house as their primary residence, or if they later move away, the property may no longer qualify for significant homestead benefits based on their use. At the same time, you may have weakened your claim because you no longer hold title. The result can be a loss of financial shields that Texas law would otherwise provide if your estate plan had been structured differently.
Thoughtful planning can often preserve both the homestead protections and your long-term objectives for passing the property to the next generation.
Safer Alternatives for Passing Your Texas Home
The good news is that Texans are not limited to an all-or-nothing deed transfer to children. Depending on your goals, options such as revocable living trusts, enhanced life estate deeds, transfer-on-death deeds, or carefully structured trusts can allow you to:
- Maintain control and use of the home during your lifetime.
- Preserve step-up in basis for income tax efficiency.
- Coordinate with Medicaid and long-term care strategies.
- Reduce the likelihood of family conflict and creditor exposure.
The right approach will depend on your complete financial picture, your family dynamics, and your long-term care considerations, not just the home’s value.
Discuss Your Options with Trusted Counsel
Before signing a deed that might be difficult or impossible to unwind, it is wise to sit down with a knowledgeable attorney who understands both Texas real property rules and broader estate planning consequences. A brief conversation can reveal risks that are not apparent from surface-level advice or informal recommendations from friends.
Residents of Colleyville and the greater Dallas-Fort Worth metroplex can turn to The M Firm for guidance tailored to their specific circumstances. Attorney Marla Mundheim advises how to protect the family home while preserving flexibility, tax advantages, and family harmony. Rather than relying on a quick deed transfer that might create lasting problems, consider making a comprehensive plan that truly secures both your property and your legacy.