My parents have made a will leaving me their home. They're in relatively good health, however, I've read horror stories of families losing homes to medicare. So, I asked them to meet with a lawyer, thinking a living trust would be the way to go. To my surprise, he recommends just transferring it to me right now, with protection by way of a one million dollar umbrella policy.
Any suggestions? I'm unfamiliar with elder law, and I'm not a big RE investor, I just own my own duplex right now. Has anyone here dealt with a similar situation that can share some advice?
Any horror story you heard about Medicare is just a "story". No one I know ever lost their home to Medicare.
Transferring to you right now is the absolute worst advice your parents could have received. You lose the step up in basis and your parents surrender ownership of their home before they die. What would keep you from having a falling out with your parents, then selling the house out from under them? If you get into financial trouble and go into Chapter 7 -- you also lose the house where your parents are living. Really bad advice from this attorney.
Remember, inheritances only happen when someone dies. No problem with inheriting at your parent's stepped up basis. The issue here is inheritance will have to go through probate and depending upon your state, probate costs could get expensive.
In my state of SC, the court costs for probate are quite cheap. And for a simple estate, where you are the only heir, you can administer the probate yourself -- no attorney needed.
If your parents (or the property you are to inherit) are in a state where probate costs based on the value of the estate can be expensive, then the way to avoid probate is to use a living trust as the title transfer vehicle. What you and your parents should do is a cost benefit analysis. Calculate the probable probate costs for your inheritance and see if they are significantly greater than the cost of setting up a trust.
Nothing wrong with a trust. I think you and your parents should be sure that you will really benefit from a trust before you spend the money to set one up.
Do you not trust the advice the attorney gave your parents? It seems he would have been given all the facts, knows the laws of your state, and is in a much better position to advise them than we are.
Well, I didn't meet with the lawyer myself, and he doesn't know me. He briefly discussed living trusts and LLCs with my parents, but they decided on immediate transfer to me personally, probably because it was the simplest.
I know that real estate investors generally don't keep a lot of assets in their own name, to limit liabilities. What if I have a tenant that sues, or if a future investment goes sour? I want to be absolutely sure my parents can stay in this house for the rest of their lives.
So, hopefully someone on this forum has gone through the same thing and can share the experience. Has anyone used a living trust or an LLC for this?
Any horror story you heard about Medicare is just a "story". No one I know ever lost their home to Medicare.
Transferring to you right now is the absolute worst advice your parents could have received. You lose the step up in basis and your parents surrender ownership of their home before they die. What would keep you from having a falling out with your parents, then selling the house out from under them? If you get into financial trouble and go into Chapter 7 -- you also lose the house where your parents are living. Really bad advice from this attorney.
Remember, inheritances only happen when someone dies. No problem with inheriting at your parent's stepped up basis. The issue here is inheritance will have to go through probate and depending upon your state, probate costs could get expensive.
In my state of SC, the court costs for probate are quite cheap. And for a simple estate, where you are the only heir, you can administer the probate yourself -- no attorney needed.
If your parents (or the property you are to inherit) are in a state where probate costs based on the value of the estate can be expensive, then the way to avoid probate is to use a living trust as the title transfer vehicle. What you and your parents should do is a cost benefit analysis. Calculate the probable probate costs for your inheritance and see if they are significantly greater than the cost of setting up a trust.
Nothing wrong with a trust. I think you and your parents should be sure that you will really benefit from a trust before you spend the money to set one up.
You might want to bring up the subject of a "lady bird" deed with an attorney in your area. It's cheap & easy & if accepted in your state covers all the bases - the house isn't yours until the death of both parents, it's protected from Medicare if done well in advance of them needing LTC, and it gives you the advantages of a normal inheritance without probate.
Plus one for what Dave T said. It can be structured in such a way as what Mark H. said in that the house would be yours once they pass away.
-Steven the Tax Guy
Rob K,
That is one of the benefits of Beneficiary deeds. They are often written with provisions that if someone happens to the beneficiary before the owner's death that the property will revert back to them. The other way this could be handled is that in the will of the beneficiary they indicate who the deed is to pass on to and that person would receive their full rights to the property at time of possessor's death.
-Steven the Tax Guy
Tom,
I would talk to your parents again. The simplest thing for them to do would have been to hold title to the house jointly with right of survivorship. Then, each parent names you as the alternate beneficiary of their estate in their wills. You only inherit when the surviving spouse passes away. Probate is in play, but the cost is just the cost of a new deed and a couple of wills.
A little more complicated and a little more expensive up front, put the property into a living trust with each parent as co-trustees. You are a named beneficiary in the event they both pass on. No probate, but the trust can be expensive to set up, especially if it is set up as an A-B trust.
The least expensive is to transfer ownership to you now, but this is the most costly for you in the long run. Once you have ownership, you are responsible for the hazard insurance, property taxes, maintenance, any code violations and of course, the property is exposed to your creditors if you are sued or file bankruptcy. If and when you sell the house, your cost basis is the same as your parent's basis -- no step up in basis to help you avoid capital gains taxes.
If there is no compelling reason for you to take ownership of the property right now, then the best way for you to gain ownship is by inheritance. Hopefully, you can convince your parents to take the property back into their own names and implement one of the strategies that is mutually beneficial to both you and your parents.
Thanks for all the feedback!
My main concern is this: if my father passes first, my mother will only have a very small social security pension (and the house). If she eventually needs to go into a nursing home, correct me if I'm wrong, but Medicaid will then take her assets, and 'look back' 5 years to recover anything transferred away.
My parents recently went through a lot to keep the house, and now they tell me they absolutely want me to get it, so I think I should take steps to protect it. I don't mind having it in my name, but I told them about my concern. They talked to a lawyer, however I think they just went with the simplest choice - doing an immediate transfer (with an umbrella policy for protection).
I was hoping someone here had gone through the same thing. It hasn't been signed over yet, so I'm asking BiggerPockets, and I greatly appreciate all your input. It looks like it'll be a good idea to contact a lawyer in my area that specializes in elder care, and then I'll post a follow-up. Thank you all again!
Tom,
If your father is receiving social security benefits, then your mother can continue to receive his benefit as a survivor benefit after your father passes.
Yes, there is a five year lookback period with Medicaid (not medicare).
Medicaid is a state insurance program for the indigent, meaning persons with no means. If your morther had to go into a nursing home, then she would not be eligible for Medicaid until she had spent nearly all of her "assets" and become indigent. So, before your mother can become eligible for Medicaid, she would have to pay her nursing home expenses out of pocket until she was broke. If she owned a home, had no spouse still living in the home, and had no expectation of returning to the home, then the Medicaid rules count the value of that home as part of her assets. Your mother would have to pay for her nursing home costs until she exhausted all her assets.
If she transferred the home to you within five years of applying for Medicaid, then she would have to continue to pay her own nursing home costs until she paid the total of the value of the home she transferred to you. Medicaid might even put a lien on the home until she paid an amount equal to the value of the home.
By all means, speak to an elder care attorney and explore how to use an irrevocable trust to conserve your "inheritance" and also preserve the basis step up and all the tax advantages of inheritance.
Yes, Dave, you've hit on it. My father was a teacher for many years, which had its own pension plan and did not pay into social security. (As far as I know, he no longer has any life insurance, and only a small savings.) Plus, my mother stayed home to raise us kids instead of working. If my father passes first, my mother will be living on very little each month.
My parents asked me to meet with their lawyer, and I found out the issue. He was giving the best and simplest recommendation to THEM, not to me, which was immediate transfer of the property. He didn't recommend a trust because it costs more, but he will now set up an irrevocable trust for me.
Thanks for all the input, I greatly appreciate it!
resurrecting this old thread as we were put into the exact same scenario as Tom D over the weekend. My mother in law was suggested to transfer her house to my wife now such that medicaid wouldn't take it if she had to go into a nursing home in the next couple of years.
Tom, can you tell me how everything went? What did you decide to do? Were there any tax implications by way of the transfer?