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Kathy L. McNair

Using a Life Estate Deed to Protect your Home


I meet with many clients that are concerned about losing their home, if they need nursing home care. Some people think that they can simply transfer the home to their children and it will be protected. This is usually not a good idea. If you transfer the house outright, you will lose all ownership and control. If your children get divorced or sued, you could lose your house. In addition, there are negative income tax consequences.

In some cases, a life estate deed can help protect the equity in your home, if you later need nursing home care. A life estate deed grants a future interest in your home to someone. You retain the right to live in and collect the rents from your home during your lifetime. Upon your death, your interest in the home ends and the home belongs to the person that you named in the deed as the future interest holder, called remainderman.

There are several benefits to using a life estate deed:

1. It provides you security in your own home during your life. With a life estate deed, no one can force you out of your house. For example, if your children have a future interest in your home and are sued or divorced, you cannot be forced to leave or sell your house.

2. In most towns, you should be able to retain any tax abatements that may have been available before the transfer, such as veterans and senior citizens exemptions.

3. The remaindermen may not transfer or sell the property without your signature.

4. The remaindermen will receive a “step-up in basis” when you die. This means that the property they inherit will be valued for tax purposes at the date of your death, not the date of the transfer value or the value that existed when you acquired the property.

5. Your home will not be a probate asset upon you death. It will automatially pass to the remaindermen.

You also need to consider the following consequences of a life estate deed:

1. The transfer of the life estate deed triggers the five year waiting period for Medicaid eligibility. If you need nursing home care within five years of establishing a life estate deed, we can advise you on your options. Most often, you will need to ask your children (or remaindermen) to sign a new deed to give the property back to you.

2. If you decide to sell your home during your life, you will need the permission of the remaindermen.

3. The protection that you received for Medicaid planning purposes, will not protect the proceeds that you receive from the sale of the house.

4. Without proper guidance when selling your home during your lifetime, the remaindermen may incur capital gains income taxes on the sale proceeds.

5. If you do not plan on staying in your home, an irrevocable trust may be a better option.

For many clients a life estate deed is a great way to provide security and protection in their most treasured asset. If you are interested in finding out more about life estates, please contact our office.

Senior Solutions Attorneys at Law, 30 Church Street, Suite 210, Belmont, MA 02478

Phone: 617-489-5900

Email: kmcnair@seniorsolutionsinfo.com

Copyright 2015

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