MEREDITH | PC

Adding a Child to a Deed Seems Simple, But Might Have Negative Consequences

People like to try to solve problems in a simple manner, but like do-it-yourself dentistry, things that sound like simple solutions to estate planning situations could lead to problems.

People who own their own homes, especially when the mortgage is paid off, often think they should add their adult child or children to the deed so the asset passes to their heir(s) without going through probate.  However, this seemingly simple step could lead to a few issues, one of which is making you ineligible for Medicaid for a period of time. That’s just for starters, as reported in a recent article from nj.com, “The risks of changing your home's deed.”

If the home has unrealized capital gains when he passes away, only his half of the value of the home would be eligible for a step-up in basis. If a senior goes ahead and sells the home while he’s still alive, he can exclude up to $250,000 of capital gains from tax, if it was his primary residence in two of the five years directly preceding the year it was sold.

However, if the daughter lives out of state, adding her to the deed will mean that her half won't be eligible for the exclusion because her primary residence is in another state.

In addition, if the daughter has creditors to whom she owes money, those creditors could attach a lien to her half of the senior’s home.

One other thought is whether the senior owns other assets or has long-term care insurance or other resources to pay for long-term care, should it become necessary.

If the senior in our scenario transfers half of his home to the daughter, it could be an issue if he needs long-term care and needs to qualify for Medicaid. Medicaid has a five-year lookback to determine if you gave assets away within five years of your application for benefits. Transferring the home could make the widow here ineligible for a time.

This sort of decision is best made with the guidance of an experienced elder law attorney who can address the specific circumstances and make sure that all parties concerned understand the implications of the decision. It could be costly for you or your heirs, so you’ll want to be fully informed.

Reference: nj.com (January 29, 2018) “The risks of changing your home's deed”

How to Buy a Retirement Home with A Sibling or a Friend

Single seniors looking to buy a home together gain several advantages, but there are certain legal issues that need to be addressed to protect buyers and their heirs.

Buddying up to buy a retirement home is a great idea for single seniors who have more purchasing power together than they could on their own. But according to NJ 101.5 in “Buying a retirement home together,” certain estate planning aspects need to be addressed so that if one of the owners passes away or if the situation doesn’t work out, the other owner has some level of protection.

Titling the property is critical in eliminating potential problems in the future.

There are two ways to title the property— “Joint Tenants with Rights of Survivorship” or as “Tenants in Common.” With Joint Tenants with Rights of Survivorship (JTWROS), each party owns the property equally and undivided. Depending on state law, if one party wants to transfer his or her share to another person during his or her lifetime, the other owner has to consent and sign the resulting deed. After the death of one owner, rights of survivorship mean that owner’s share is transferred automatically to the surviving owner. These survivorship rights trump the deceased owner’s will or state inheritance laws.

Tenants in Common (T-I-C) is where owners own equal or unequal shares of the same property. Each owner has full control over his or her share. The one owner can transfer his or her share to another person at any time without the approval of other owners. If an owner dies, this individual’s share of the property can be passed along to a person named in his or her will.

If you choose T-I-C, it’s important that both owners have a current Last Will and Testament that designates how each share of the property is dealt with upon one owner’s death.

Sharing a home with another senior has many advantages, and as Baby Boomers age, this trend may gain more popularity. Because of the age and stage of those involved, it’s important to ensure that all owners have their estate plans in place to protect each other and their heirs. An experienced estate planning attorney should be part of the process.

Reference: NJ 101.5 (August 2, 2016) “Buying a retirement home together”

Second Marriage and Blended Families Add Complexity to Estate Planning

The old adage is right—a second marriage is indeed the triumph of hope over experience. Add estate planning to keep that hope—and peace in the family—intact.

It’s a delicate balance to hold: preserving assets for children from a first marriage and—at the same time—ensuring that your new spouse will have the assets needed to maintain his or her life in comfort. Balancing the two often requires coming to terms with realistic expectations for all.

CNBC’s article, “Getting remarried? Protect your assets and your interests,” recommends looking ahead and addressing questions about your goals, how your existing family and new spouse will relate to one another when you're gone and who will be in charge of the money. The big issue that heirs of a remarrying couple need to worry about more than federal estate tax is the new spouse.

The reason for this is that every state except Georgia gives rights to a spouse to make an elective share against a decedent spouse's estate or have the right to community property. That means that a portion of an estate could go to the new spouse even if the decedent's will disinherits him or her. Unless you expressly exclude your new spouse from your will, he or she typically has an intestate right against the probate estate.

If an individual has an ERISA retirement account, the spouse likely has certain rights to it—whether it is a defined benefit or a defined contribution plan. IRAs aren’t subject to the same rules. In many states, the surviving spouse has rights to certain personal property. Sometimes this is based on values, and other times it’s set out in a state statute.

If there is no estate planning document, such as a will, power of attorney or health care directive, the new spouse is often statutorily designated as the first decision-maker with the legal authority to deny access to anyone who might want to have a say in the affairs or care of the incapacitated spouse.

The ex-spouse may still be involved because assets could still be left to your ex if you fail to update your beneficiary designations—even if you intended to leave things to your new spouse and/or children instead. You might be contractually obligated to keep your ex-spouse as beneficiary of a retirement account or life insurance policy for a certain period of time. Check the fine print.

When you’re updating your estate planning documents, also think about the following issues. First, consider whether you’d like to name your new spouse as your trustee/executor/agent because the disposition of assets becomes tricky when there are kids from prior marriages. Next, take a look at your assets and decide if you want to hold them individually or jointly. Jointly-held assets with rights of survivorship means that your surviving spouse will inherit these assets automatically without probate. Note that in a community property state, property that is obtained prior to marriage or in an inheritance can retain its character as separate property.

If your new spouse moves into your house, you’ll have to decide if you want to add his or her name to the deed and to the mortgage. You should consider where your spouse will live if you die first. Also, you may need to specifically bequeath certain personal items to your children—depending on family significance and your wishes—and be aware of how “children” is defined by your will. This could include only your own children or also your spouse's children. Here are a few other common estate planning mistakes people make after remarrying:

• Beneficiary designations left out-of-date;
• Assets unintentionally comingled;
• Failure to work with estate planning attorney on new estate planning documents;
• No prenuptial;
• Instructions to loved ones are verbal, not in writing;
• Failure to properly title the house; and
• Not buying long-term care insurance or planning for possible nursing home care.

There are a lot of pitfalls in creating an estate plan for a second marriage, and you’ll want to speak with an estate planning attorney who is sensitive to the needs of a blended family. Also, be clear about your goals and your intentions with your children and your spouse. They may not like your decisions, but you may do a big disservice to both by waiting until after you are gone for your plans to be revealed.

Reference: CNBC (July 28, 2016) “Getting remarried? Protect your assets and your interests”