In many families, property, specifically the family home, is the most important asset for consideration during estate planning. Accordingly, lawyers share advice about how the dual goal of remaining securely at home while we age, and ensuring the home ultimately passes easily to loved ones, can be accomplished through a life estate.
Something for Everyone?
Yes, it is possible to make arrangements that allow older people to continue living at home until they die and provide for smooth transition to the next generation. Attorneys at Chambliss, Bahner & Stophel point out that a “life estate” can be an important solution and explain:
A life estate is a form of joint ownership that allows one person to remain in a house until his or her death, when it passes to the other owner. Elder law attorneys use life estates to help avoid probate and to give a house to children without giving up the ability to live in it…. The life tenant…possesses the property during their lifetime. The remainderman (other owner, i.e., child)…cannot take possession until the death of the life tenant….If the property is sold, the proceeds…are divided among the life tenant and the remainderman…. The life tenant may receive a lesser share…the older the life tenant, the smaller their share. Upon the death of the life tenant, the house will not go through probate, as at the ownership passes automatically to the remainderman.
In addition to housing challenges, longer lives also come with financial challenges in many families, making government benefits, like Medicaid ever more important. Attorneys point out that placing property in a life estate can be helpful when it comes to Medicaid eligibility “because the property is not included in the life tenant’s probate estate, it can avoid Medicaid estate recovery,” but offer this caution: “Transferring your property and retaining a life estate can trigger a Medicaid ineligibility period if you apply…within five years of the transfer. Purchasing a life estate should not result…in a penalty if you buy a life estate in someone else’s home…and live in the house for more than a year.” While local regulations may vary, these examples may be useful to families juggling housing and Medicaid considerations:
A senior who can no longer live in his home might sell it and use the proceeds to buy a home for himself and his son and daughter-in-law, with the father holding a life estate and the younger couple as the remaindermen. Alternatively, the father could purchase a life estate interest in the children’s existing home. Assuming the father lives in the home for more than a year and he paid a fair amount for the life estate, the purchase of the life estate should not be a disqualifying transfer for Medicaid.
Additional Estate Planning Tips
An important aspect of estate planning is the designation of the fiduciary who will ultimately administer affairs. When there is a trust, the fiduciary is a trustee. If there is a will, this person is typically referred to as an executor. Depending on the circumstances and location, the fiduciary could also be referred to as a personal representative. No matter what term is used, the family member, friend or professional appointed has a fiduciary obligation “to act with the utmost good faith,” putting the interests of the beneficiaries before their own, while administering the affairs of the estate. Given the significant responsibilities involved in serving as a fiduciary, bonds, frequently referred to as estate bonds may be requested. Estate bonds are a type of fiduciary bond, and lawyers explain: “A fiduciary bond is a legal instrument that essentially serves as insurance to protect beneficiaries, heirs and creditors when a fiduciary fails to perform honestly or competently…In general, a fiduciary is someone who owes a duty of loyalty to protect the interest of another….” It’s quick and easy to obtain estate bonds from leading national provider, Colonial Surety. The steps to obtaining an estate bond or other fiduciary bond at Colonial are easy: get a quote online; fill out the information, and enter payment. Then, print or e-file the bond in minutes.
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