There are many reasons you might wish to keep your home in the family after you die—like an heirloom, for example, or to provide a fallback residence for your children in case of financial difficulties. Regardless of your reasons, there are a number of ways to protect your family’s home after you die.
Although each method has its pros and cons, the Law Office of Andrew M. Lamkin, P.C. can help you execute just the right plan. The precise strategies that you adopt based on your individual circumstances and priorities
Examining Your Options
Following is a description of several legal tools that you can use to help pass on your family home to future generations. The precise strategy you adopt should be based on your individual circumstances and priorities, in consultation with an experienced estate planning attorney in New York.
Option 1: Re-Title Your Home in Someone Else’s Name
You could transfer the deed to your home to someone you trust. This will prevent Medicaid from placing a lien on your home, and it could help reduce your taxes. Unfortunately, it also renders you ineligible for certain tax deductions such as veterans’ deductions or the Enhanced STAR property tax rebate program.
Option 2: Establish a Revocable Living Trust
In a revocable living trust, you create the trust with your home and perhaps other property as the trust asset. You designate a trustee to manage trust assets according to rules you set forth in the governing trust document. You can designate anyone as a trustee, even yourself. Keep in mind that you can revoke the trust at any time and regain ownership of the assets. If you die with the trust still open, however, the trust will become irrevocable.
The advantages of a revocable living trust are significant. First of all, your home, if placed in the trust, is not subject to probate. The trustee (including a successor trustee you name to replace you when you die) can ignore probate proceedings and continue administering trust assets as contemplated in the trust document. Your beneficiaries do not own your house either, so their creditors cannot seize it. Your creditors can seize your home, however, as long as you are alive.
Option 3: Establish a Medicaid Trust
A Medicaid trust, if properly executed, will prevent creditors from selling your home to pay for your nursing home care. The problem is easily stated. Nursing home care is so expensive that most people cannot afford it. Although Medicaid is an option for people who cannot afford to pay for their own nursing home care, Medicaid applies limits on the value of assets you may hold and still qualify for benefits.
If the value of your assets exceeds the maximum, you will have to sell your assets, even your family home, to pay for nursing home care. For the most part, you cannot shield these assets by placing them into a trust, because Medicaid will impose significant transfer penalties. A Medicaid trust is just about the only solution to this problem. Five types are available, depending on your needs:
- special needs trusts,
- medical assistance special needs trusts,
- supplemental needs trusts,
- special purposes trusts, and
- special treatment trusts.
Which trust you select depends on a variety of factors. Even if it is successful, a Medicaid trust will not ensure the survival of your family home for generations on end. All it will do is prevent your home from being sold to pay your nursing home bills.
Option 4: Transfer Your Home and Reserve a Life Estate
A life estate differs from full ownership (“fee simple” ownership) in that when you hold a life estate, you retain only the right to the property for the remainder of your lifetime—you cannot bequeath it to anyone else. You continue to be responsible for taxes and maintenance during your lifetime, and you will enjoy any tax exemptions. You can create a life estate by transferring your ownership to another family member but reserving a life estate.
It is best to do this by transferring your home to an irrevocable trust, to keep your home out of probate when you die. Please note that even after you create a life estate, you are still responsible for paying property taxes. The good news is that you are also eligible for the homeowner’s deductions that you would sacrifice by re-titling your home, including the STAR rebate.
Option 5: Establish a Dynasty Trust
A dynasty trust is an irrevocable trust that can be established during your lifetime, or after you die (by the terms of your last will and testament). A dynasty trust offers the following characteristics:
- A dynasty trust evades the long-standing “rule against perpetuities,” which can theoretically last forever.
- Your assets are subject to the estate tax only once—when you place them in the trust. Even then, you can place up to the value of the estate tax exemption into the trust without becoming liable for estate tax. The 2021 estate tax exemption is $11.7 million for the IRS and $5.93 million for New York State (it goes up almost every year). Your assets are not subject to estate tax again, no matter how much they appreciate in value.
- You can also place cash and other assets into a dynasty trust along with your home.
- As with any irrevocable trust, nobody (even you) can change the terms of the trust once it is created.
- As with other trusts, your beneficiaries do not own the house. Their creditors and ex-spouses cannot seize your house or take an interest in it.
- The terms of the trust can prevent anyone from selling the house.
- You can appoint your children as co-trustees and empower them to decide who lives there.
The trustee of a dynasty trust is often a bank or trust company, especially if it holds extensive assets.
Now is the Time to Begin Your Estate Planning
It is impossible to predict with certainty just what the future will bring. Take steps to make sure that your family home does not fall into the hands of creditors, ex-in-laws, etc. Contact Long Island elder legal matters lawyer Andrew M. Lamkin, either online or by calling 516-605-0625, so that we can schedule an appointment to discuss your options.