Estate Planning Pitfall — Transferring home ownership to your children

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Abstract: Many people mistakenly believe they can transfer their home to their children while retaining the right to continue living in it for the rest of their life, and remove a substantial portion of the home’s value from their taxable estate. It’s a simple, inexpensive way — they reason — to avoid probate and reduce estate taxes. But, on the contrary, retaining such a “life estate” guarantees that the home’s value will be included in one’s taxable estate after death. Yet, as this article explains, that’s not necessarily a bad thing.