When the asset is real property, for example, your house, this occurs through the use of a life estate deed.
However, life estate deeds are not a fix-all. They have advantages and disadvantages that should be examined based on your planning goals and circumstances.
A life estate with powers does not change the owner’s legal ability to further conduct business concerning the house. During his life, the life tenant can mortgage, refinance, sell or otherwise convey the property without notifying the remainderman and without his or her consent.
However, that does not occur when there is a life estate deed without powers. Here, the owner’s legal authority to mortgage, refinance, sell or otherwise convey is restricted. The remainderman must be given notice and normally sign with the Grantor thereby establishing his or her consent to the Grantor’s sale (etc.).
Doing so in a Medical confine in Maryland is considered a gift and creates a penalty. Once the penalty period runs out, the house is no longer considered an asset available to offset the cost of nursing home care. It may be necessary to put the real property back into the Grantor’s name alone in a Medicaid matter. The Grantor and the remainderman should both have a Power of Attorney as it will provide them with additional protection if either of them becomes disabled.
For example, if the remainderman is your child and your child does not live in the house, then he or she will not be able to claim a capital gains exclusion for the gain on his or her share of the property. The value of the life estate and the remainderman is determined by the actuarial life expectancy of each person.
Therefore, you need to carefully consider whether or not a sale of the property will occur before you die.
Mr. Abraham is an experienced attorney and founding member of the Law Firm of Abraham & Bauer. The Towson, MD office of the firm concentrates its practice in Estate Planning, Elder Law, Probate, Medical Assistance (Medicaid), Guardianship, Asset Preservation and Fiduciary Representation.
He is an active member in a number of professional organizations that focus on law, the senior community, and estate planning. He works with clients in Central Maryland, especially in Towson, Hunt Valley, Lutherville/Timonium, Parkville, White Marsh, Bel Air & Northern Baltimore City.
Schedule a consultation to help you and your loved ones.