Life Estate versus Irrevocable Trust
My parents are in the midst of estate planning. The amount of money they have is minimal, but their home is worth almost $1M and they would like to protect it and be able to give it to 4 children upon their death. I can't seem to get a straight answer on whether or not a life estate is the way to go or to transfer some ownership of the property and create a trust (with my father retaining power of appointment). Can you advise and perhaps share some of the advantages/disadvantages.
Re: Life Estate versus Irrevocable Trust
The reason you may not be able to get a "straight answer" is that the answer is very fact-specific. More facts are needed here -- there are significant MassHealth, income (and possibly estate) tax, and health care needs and cash flow questions that need to be looked at. Both strategies have significant risks where the house is the only asset -- particularly if there's not good cash flow and no long term care insurance.
Yes, you could do a transfer of the property into an irrevocable trust, but such trusts need to be carefully drafted to minimize capital gains hits in the event of a lifetime sale which allowing enough flexibility to pay for the cost of assisted living if needed. If either parent ever needs MassHealth to pay for long-term care coverage, rest assured that the agency will pick the trust apart. The transfer itself to either a life estate or a trust would be countable for 5 years. Keep in mind also that if the house goes to a life estate and is sold during your parents' lifetimes, the remaindermen -- you and your siblings -- would have a capital gains hit because you take the gift at your parents' basis and it is not your primary residence.
I've been practicing elder law since 1998. Please have your folks contact me if they would like to set up an appointment.
Re: Life Estate versus Irrevocable Trust
The reason you may not be able to get a "straight answer" is that the answer is very fact-specific. More facts are needed here -- there are significant MassHealth, income (and possibly estate) tax, and health care needs and cash flow questions that need to be looked at. Both strategies have significant risks where the house is the only asset -- particularly if there's not good cash flow and no long term care insurance.
Yes, you could do a transfer of the property into an irrevocable trust, but such trusts need to be carefully drafted to minimize capital gains hits in the event of a lifetime sale which allowing enough flexibility to pay for the cost of assisted living if needed. If either parent ever needs MassHealth to pay for long-term care coverage, rest assured that the agency will pick the trust apart. The transfer itself to either a life estate or a trust would be countable for 5 years. Keep in mind also that if the house goes to a life estate and is sold during your parents' lifetimes, the remaindermen -- you and your siblings -- would have a capital gains hit because you take the gift at your parents' basis and it is not your primary residence.
I've been practicing elder law since 1998. Please have your folks contact me if they would like to set up an appointment.
