There are certainly advantages to deeding property prior to one's death, rather than waiting for that property to pass by will. However, it comes with some negative side effects.
When it is done the landowner no longer has it on the balance sheet or the responsibly for it. It can also allow the landowner the enjoyment of watching the next generation take over and begin operating the land that the next generation now owns. Conversely once the property is deeded, the landowner has no more control and the deed is irrevocable. This means if the landowner gets angry at the heir, he or she cannot take back the transfer. Similarly, if the heir decides that he or she wants to do something with the property that the landowner disapproves of--like selling the land, growing Aronia Berries, or making it an ATV park, the landowner has no say over that decision because the land is owned by somebody else. Also, if the new owner gets sued and has judgments against them, the land stands to pay for that judgement in most cases.
The transfer allows the land to pass without going through the probate process. it is a process that can take time, effort, and money to complete.
Transferring the property starts the five-year window prior to qualifying for Medicaid and avoiding Medicaid Estate Recovery Program. When a person seeks to apply for Medicaid benefits, one question that they will have to answer is whether they have transferred property within the last 5-years. If they have, then they may be ineligible to qualify for Medicaid for a certain period of time if it is less than market value. Additionally, the value of the property transferred within that 5-year period would be counted towards the value of the person's assets for purposes of determining whether they qualify for Medicaid.
Tax implications of making this type of lifetime transfer are fact dependent. If property is deeded during a person's lifetime, that may have gift tax consequences and may also affect the landowner's lifetime exemption with regard to estate taxes. It is critical that a landowner consult with a tax professional before making a decision to gift during his or her lifetime. It also impacts the basis on the property. Generally, if property is passed by will at a person's death, the heir receives a step up in basis for capital gains tax purposes, thus likely decreasing the capital gains taxes that would be owed if the property is sold by the new owner. If property is transferred prior to death, the heir will not receive this step up in basis.