Many Gen Xers and millennials are coming to the conclusion that buying a house of their own in the future is a vanishing prospect. Some of those folks are realizing they might have a hope of homeownership if there parents are fortunate enough to pass down their home. But while receiving your parents’ old house might seem like a godsend, one online lawyer is advising you and your folks to look before you leap.
Money Lawyer Pam (@lawmother) uses her TikTok account to dispense free legal education to her 100,000-plus followers. In a video she dropped yesterday, which currently has 1.8 million views, Pam states that a “gifted” house can become a millstone around your neck if you ever need to sell it.
@lawmother Avoid capital gains tax with a living trust. Download a free copy of my bestseller, Legally Ever After to learn more. Link in my bio. #tax #realestate #generationalwealth ♬ original sound – Money Lawyer Pam
In the video, Pam acts out the part of both parent and child. When the “mom’ offers to give her “daughter” her old house, the daughter refuses. Shocked, the mom asks why she wouldn’t want to accept the house as a gift.
“You don’t wanna help me and yourself,” she asked the daughter.
“I do Mom,” the daughter said. “It’s just you bought the house for $100,000 and it’s now worth $800,000. If you transfer it to me now I’ll be responsible in paying the $700k in capital gains when I sell it.”
But Pam reveals that there is a perfectly legal way to avoid paying that difference.
“Put your house in a revocable living trust and name me as the beneficiary. I’ll receive this capital gains tax-free and it will avoid probate,” Pam said.
The Daily Dot has reached out to Pam via TikTok for further comment.
In the comments for the video, Ariaana (@arriiixo) wrote, “I’m glad I saw this considering this has been the conversation with my parents.”
“Glad i saw this cuz my mom was just talking abt this cuz she’s leaving the country,” Gabby Rodriguez (@gabbyvery_official), another viewer, stated.
According to Turbo Tax, there are short-term and long-term capital gains. Short-term gains are profits made from selling assets you’ve held for a year or less, while any gains from assets you’ve had for longer than a year are long-term capital gains.
Many commenters were impressed by the video even if receiving a relative’s house wasn’t in their cards. And some said they just didn’t understand what Pam was talking about at all.
‘”Me saving this even though my mom doesn’t own a house,” Aspen (@plantsgard3n) wrote.
Gisela Andrade (@gisela.xo), another viewer, stated, “Well thankfully my mom doesn’t have a house so nothing for me to worry about.”