Transferring Ownership of Property from Parent to Child in New York City

As a parent, you may be considering transferring ownership of your property to your child, whether as a gift or as part of your estate plan. While figuring out whether that is the right decision, it is important to keep in mind the potential tax consequences as well as control over your property. Below, we discuss the three ways a parent can transfer property to a child and the corresponding tax and control consequences.

Making a Trust

One way for parents to transfer real and personal property to their children while maintaining control is to establish a trust. With a trust, the parent transfers assets into the trust but remains in control of what happens to the property after they die. The children can be named as beneficiaries who will inherit the trust assets after the parent’s death. The parent can change what happens to the property after their death at any time. A trust has many benefits, which we discuss in a different post.

Transferring Property but Retaining a Life Estate

Parents can transfer real property to their children but retain a life estate in the property. This means the parent transfers full ownership to the child but reserves the right to use and live in the property for the remainder of their life. This option avoids probate because the child immediately takes legal ownership, but the parent keeps lifetime rights.

However, a parent cannot revoke a life estate deed. If circumstances change and the parent needs to sell or mortgage the property, the parent cannot do this without full consent and agreement of the child.

There are also tax advantages to making a trust as opposed to a life estate deed.

TOD and POD

For financial accounts, transfer on death (TOD) and payable on death (POD) accounts allow parents to transfer property to children, with the parent still retaining control. Parents can change beneficiaries during their lifetime. Upon death, the account transfers directly to designated beneficiaries without probate.

TOD accounts are more commonly used in investment accounts, such as IRAs, 401ks, brokerage account, and other accounts holding securities. POD accounts are generally used for checking accounts, savings accounts, certificates of deposit, and money market accounts.

If you want to transfer property to your children while still retaining control during your lifetime, we at the Law Offices of Albert Goodwin are here for you. We are located in Midtown Manhattan in New York City. You can call us at 212-233-1233 or send us an email at [email protected].

Outright Lifetime Gift

The simplest transfer is an outright lifetime gift. The parent signs a deed conveying full ownership to the child during life. The child becomes the legal owner immediately and the parent has no further interest in the property.

This approach has clarity going for it but also significant drawbacks:

• Loss of control. The parent has no continuing right to live in the property, sell it, mortgage it, or do anything else with it. The child is now in charge.
• No step-up in basis. The child takes the parent's basis in the property (carryover basis). If the property has appreciated significantly during the parent's ownership, the child faces a substantial capital gains tax bill if they later sell. Property transferred at death receives a step-up to date-of-death value, which often eliminates the gain.
• Gift tax issues. Transfers above the annual exclusion amount must be reported on a federal gift tax return (Form 709). The transfer counts against the parent's lifetime gift exemption. New York does not have a separate gift tax, but lifetime gifts are added back into the New York estate calculation for certain decedents.
• Medicaid look-back. A gift triggers a 60-month look-back for institutional Medicaid eligibility. If the parent needs Medicaid within five years of the gift, a penalty period applies.
• Creditor exposure. The property is now the child's, exposed to the child's creditors, the child's spouse in a divorce, judgments against the child, and so on.

For all of these reasons, outright lifetime gifts of real estate are usually not the right strategy. The other approaches in this article are generally better.

Comparing the Strategies

A side-by-side comparison helps clarify when each approach makes sense:

Trust: Best for parents who want to retain control during life, want flexibility to change the plan, want to avoid probate, and want to provide for the child in a structured way. Revocable trusts offer maximum flexibility; irrevocable trusts offer asset protection but require giving up control.

Life estate deed: Best for parents who want immediate transfer of remainder ownership while retaining lifetime use. Useful for Medicaid planning (the look-back applies only to the value of the remainder, not the full property). Less flexible than a trust because life estates cannot easily be modified.

TOD/POD accounts: Best for financial accounts that can use these designations. Provides simple, direct transfer at death without probate. Does not work for real estate in New York (real estate TOD deeds are not yet authorized).

Outright lifetime gift: Rarely the right choice for real estate because of the loss of control, no step-up in basis, and Medicaid look-back issues.

Will: The default if you do nothing else. Property passes through probate at death. Receives full step-up in basis. Provides no incapacity protection.

The Medicaid Asset Protection Trust Specifically

For parents whose main goal is Medicaid planning, a specific irrevocable trust structure — the Medicaid Asset Protection Trust — is the workhorse of New York elder law practice. The MAPT is funded with the home and other assets the family wants to protect. The grantor typically retains a right to use the home and to receive income (but not principal) from other trust assets. The transfer starts the five-year Medicaid look-back clock. After five years, the trust's assets are outside the grantor's countable resources.

The advantages of the MAPT over a life estate include better preservation of the step-up in basis, more flexibility in how the home is dealt with during the grantor's lifetime (the trustee can sell the home and reinvest the proceeds in another residence, for example), and creditor protection within the trust.

Tax Filing Obligations

Lifetime gifts above the annual exclusion (currently $18,000 per donor per donee in 2024) must be reported on IRS Form 709. The reporting requirement applies even though no gift tax is actually due in most cases — the gift counts against the lifetime gift exemption rather than producing immediate tax. Failing to file when required can create compliance problems later, particularly when the donor's estate eventually files an estate tax return.

Transfers into trusts may also require gift tax returns depending on the structure. Irrevocable trust contributions are generally completed gifts at the time of contribution. Revocable trust contributions are not gifts because the grantor retains the power to revoke.

Coordinating with Your Estate Plan

Property transfer decisions should be made in the context of your complete estate plan. The transfer of one property affects how other assets are distributed, what the overall tax picture looks like, and how the plan handles contingencies. Pieces that should be coordinated include the will, any existing trusts, life insurance beneficiary designations, retirement account beneficiary designations, joint ownership arrangements, and powers of attorney.

An estate planning attorney looks at the whole picture and recommends a coordinated set of changes rather than addressing one property in isolation. We do this work for clients throughout New York and tailor the plan to each family's specific situation.