Everyone has heard of the simple will, but there are alternate transfer methods that you may not be aware of as a layperson.
We have been providing explanations of the possibilities, and in this installment, we are going to look at the estate planning device called a life estate.
Transfer of Real Property
Your home and other types of real property can potentially be transferred through a life estate. If you choose this method as a way to transfer ownership of your home, you would be the life tenant. The person that you name to inherit the property is called the “remainderman.”
You would continue to live in the home as usual for the rest of your life, so nothing would change on that level. The remainderman would not have the right to occupy the property while you are living, and you would be responsible for all the expenses.
After your death, the remainderman would inherit the property. This transfer would not be subject to the legal process of probate.
This is one of the reasons why some people use life estates. If a home is transferred through the terms of a will, the document would be admitted to probate, and the court would supervise during the administration process.
It serves a purpose, because creditors are given time to come forward seeking payment before the estate is distributed among the heirs. There is also proving of the will, so if anyone wants to come forward to challenge its validity, they can do so during probate.
From the perspective of a rightful inheritor, probate is one big hassle. No inheritances are received while the estate is being probated, and it will take a minimum of eight months in most jurisdictions.
The time consumption is one negative, and probate expenses reduce the amount of the inheritances that will be received by the heirs. Since it is a public proceeding, anyone that is interested can access the records, so there is a loss of privacy.
Many Medicare-eligible seniors seek Medicaid eligibility because the program will pay for long-term care. Medicare will not cover a stay in a nursing home or in-home custodial care.
You are probably aware of the fact that you cannot qualify for Medicaid if you have significant assets in your name. It is possible to gain eligibility if you own a home, because your residential property is not considered to be a countable asset.
That’s the good news, but the bad news is that Medicaid could attach the home when they seek reimbursement from your estate after you are gone.
If you create a life estate, the home would immediately be transferred to the remainderman, and Medicaid would not be able to touch the property.
Life Estate Cons
We have shared the pros, now it is time to look at the other side of the coin. You would not be able to sell or mortgage the property if you have a life estate unless you obtain the cooperation of the remainderman.
Even if you did get the individual to agree, you would not get half of the proceeds. You would be selling your interest in the property, which is the right to live in the property for the rest of your life. The value of your interest would be tied to your life expectancy.
If you want to facilitate the transfer of your home outside of probate without losing control over it while you are living, you can establish a revocable living trust. This can serve as your asset transfer vehicle for other property as well.
Property in a living trust would be counted if you apply for Medicaid, but if you want to address the home for Medicaid purposes, you could convey it into an irrevocable trust.
Make the Right Choices!
As you can see, there are different paths you can take when you are planning your estate. When you work with our firm, we will gain an understanding of your situation and make the appropriate recommendations.
At the end of the process, you can go forward with a custom crafted plan that ideally suits your needs.
If you are ready to get started, you can give us a call at 513-721-1513 to schedule a consultation at our Cincinnati estate planning office. There is also a contact form on this site that you can use if you would prefer to send us a message.
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