It is important to work with an estate planning attorney when you are developing a plan, because you want to act on complete and accurate information. Sometimes bits and pieces are passed around by laypeople, and this can lead to costly mistakes.
With this in mind, we will look at the legal device called a life estate in this post.
Real Property Transfers
You can use a life estate to arrange for the transfer of your home or any other type of real estate. If you create a life estate, you would be known as the “life tenant,” and the person that is going to inherit the property would be the “remainderman” whether they are a man or a woman.
While you are still alive, you would continue to pay the bills associated with the home and live in it as usual with no interruptions. The remainderman would not have the legal right to use the property while you are alive.
Why would you consider this course of action when you can leave the home to someone in a simple will? This is a good question, and the answer boils down to one word: probate.
If you use a will, you would name an executor to act as the administrator, and your heirs would be the beneficiaries. After your passing, the executor would not be able to act independently without supervision.
The will would be admitted to probate, and the court would supervise during the administration process. It will take about nine months for probate to run its course if there are no complications, and no inheritances are distributed while the estate is being probated by the court.
There is a loss of privacy, because the records are available to anyone that is interested, and probate expenses shave down the value of the estate.
You can avoid all this if you utilize a life estate, because the property would be transferred to the remainderman outside of probate.
A life estate can also be used for Medicaid planning purposes. Most seniors will need long-term care, and Medicare does not cover the custodial care that nursing homes provide.
Since Medicaid is a need-based program, you cannot qualify if you have significant assets in your name. Your home is not a countable asset, but Medicaid is required to seek reimbursement from property that was in your possession at the time of your passing.
A lien could be placed on the home, but if you have a life estate, it would be protected when it is transferred to the remainderman. However, you have to establish the life estate at least five years before you apply for Medicaid.
Loss of Control
Yes, you get to live in your home for the rest of your life if you use a life estate to arrange for its eventual transfer after you pass away. However, there is a major negative that you should take into consideration before you make any decisions.
You would no longer be able to sell the home without the participation of the remainderman, and you would not be able to mortgage the property. Since you never know what the future holds, you may not want to go forward with your hands tied in this manner.
Plus, even if you and the remainderman mutually decide to sell the home, your interest would not be equal to the remainderman’s interest. The only thing that you would possess is the legal right to remain in the home for the rest of your life, and the exact value will depend on your age.
Other Possibilities
There are alternate ways to accomplish these objectives. If you want to qualify for Medicaid, you could convey your home and other property into an irrevocable, income-only Medicaid trust.
You would be able to live in the home for the rest of your life, and you could receive distributions of the trust’s earnings until you apply for Medicaid. If and when you do seek eligibility, the assets would not count if you fund the trust at least five years before you apply.
If the objective is to transfer the home to a beneficiary outside of probate, you can use a revocable living trust. While you are living, you would be able to sell the home, mortgage it, or dissolve the trust entirely if you choose to do so.
After you are gone, the trustee that you name would transfer the property the trust the beneficiaries, and these be probate-free transfers.
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You can see the dates if you visit our webinar page, and when you identify the session that works for you, follow the instructions to register.
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While he was in law school, he worked as an aide to the late John Sparkman, Senior Senator from Alabama. This gave him the opportunity to gain intimate knowledge of the workings of government, and this background has served him well.
He started his private practice in New York in 1974, the first Sikh to be admitted to the bar in the state of New York.And in 1995, when he narrowed his legal focus to the areas of estate planning and elder law, the prestigious American Academy of Estate Planning Attorneys accepted him into their membership.
Special needs planning is an important aspect of the field, and Mr. Khalsa has intertwined his empathy with his expertise to become a leading advocate in this area. Shortly after the Education for All Handicapped Children Act was enacted in 1975, he won the first case in New York that was adjudicated under this law.
S.J. Khalsa has a penchant for philanthropy, and he has raised well over $20 million for charities nationwide. He is a deeply spiritual man who represents the Sikh religion at religious and interfaith gatherings all over the globe.
He believes that successful professionals should contribute to the fabric of their communities, and to this end, he works with law enforcement in New York.
Mr. Khalsa is a graduate of the FBI Citizens Academy program, and he is active in their Alumni Association. He is a member of the FBI/New York Police Department Joint Task Forces on Civil Rights and Hate Crimes, and he sits on the Community Engagement Council that advises the FBI Assistant Director for New York.
He is the author of the highly acclaimed book, Estate Planning Essentials: A Guidebook for Modern Families. Lawyers of Distinction recognized him for his excellence in 2020, naming him a 2020 Power Lawyer, and he is a member of the prestigious American Academy of Estate Planning Attorneys.
Mr. Khalsa lives in Manhattan with his wife, and he has two grown children and four grandchildren. He likes to travel, and he is an avid golfer. As the co-owner of Kundalini Yoga East in New York along with his wife, he instructs practitioners and aspiring yoga teachers.
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