One of the goals of estate planning for many people is to avoid probate – which is the court supervised legal process that administers and settles an estate. Probate has the reputation of being costly and lengthy, and for complex estates, this reputation may be well deserved. But to avoid probate – you should work with an estate planning attorney, and not make this mistake….
Transferring your home into the name of a family member! All too often, we have seen people execute deeds that include other family members in an effort to avoid probate for their home. The most common type of deed that people attempt to use is a life-estate deed. Normally, A life-estate deed reserves the right for the owner to live in the home for the remainder of his or her life and then upon death, the property belongs to the family member or person listed on the deed.
Although a life-estate deed does indeed allow the home to avoid probate, it can cause several problems within an estate, to include:
- The loss of the stepped up basis the recipient would receive upon the death of the original owner – which could mean a tax burden should they sell the home;
- The transfer may be counted as a gift for federal income tax purposes – if it does qualify as a gift and it is found at a later date, it will have been unreported and may result in years of accrued interest and penalties.
- The inability to sell or refinance the property without the consent of all owners; and
- A period of ineligibility for Medicaid benefits if the transfer is made during the five year ‘look back’ period.
An estate planning attorney can work with you to meet your goals so you do not face any unintended consequences further down the road.