By Nancy C. Brady, RN, Esq. And Linda Faith Marshak, Esq.
Protecting Your Most Valuable Asset – Your Home
Many clients who come to see us are interested in transferring the title of their home to their children. For those of us in the “middle class,” real estate may be our most valuable asset, and careful consideration must be taken before jeopardizing one’s interest in the home. People want to transfer title to their home for a variety of reasons- to avoid probate, to protect the home from long term care bills being the primary two reasons.
The first thing we tell clients is it is never a good idea to transfer title outright to the children without retaining a life estate, or lifetime interest in the home. A retained life estate is assurance that you have the lifetime right to reside in the home, to collect any rents, to keep any real estate tax discounts or exemptions, and that the house will pass free of capital gains tax to your beneficiaries.
Transferring the home with a retained life estate also begins to protect the home in the event you have to apply for Medicaid in the future. If you transfer your home to your children without keeping this lifetime interest, the capital gains and real estate tax benefits will be lost, and your home could be subject to a lien for your children’s debts. In addition, your children could sell your home without your permission if no life estate is retained on the deed.
People frequently ask next what would happen if their child predeceased them, with the child’s name on the deed to the house. The answer to that question is, the child’s interest in the house would pass to the child’s beneficiaries through a will, if there is one, or by intestacy. That means that the grantors’ son-in-law or daughter-in-law may have an interest in the house under those circumstances. This is not always (in fact hardly ever) what people would want to happen. For that reason, we advise in addition to the life estate, to keep a limited power of appointment, so that if circumstances change with respect to beneficiaries, the grantor can change the ultimate beneficiaries to other family members. The limited power of appointment has no effect on Medicaid eligibility, and has tax advantages as well.
Transferring the deed to real property to an irrevocable trust has all the advantages we have already mentioned, with some added protections. The life estate and limited power of appointment can both be written into a trust, and in addition, if the property needs to be sold during the grantor’s lifetime the trust can purchase another property, or the proceeds from the sale can be held in the trust, and will be protected in the event the grantor should need to apply for Medical Assistance for long term care.
In addition to avoiding probate, people transfer title to their homes to protect the value of their home from their medical bills. With people living longer lives, it is likely that they will need some form of long-term care at some point.
Medicaid liens can be issued only on probate property, and after transfer, the home is protected within a certain period of time.
Keep in mind, this is only a brief snapshot of the advantages of transferring the title to your home. The disadvantage, naturally, of transferring your interest in the home is that you lose complete control of that asset- for example, while the house cannot be sold without your permission if you keep a life estate, you need the permission of anyone else named on the deed to sell the house as well. Certain rules apply to cooperatives and condominium, or when there is a mortgage on the property.
Most of all, remember that everyone’s circumstances are unique- it is best to have an attorney familiar with the Medicaid rules (which change all the time) thoroughly review all options with you, and advise you as to the costs involved. Make an informed, well thought out decision, and do not allow anyone else to pressure you- this important decision is yours to make!