Deed with Life Estate Understanding the Pros and Cons of This Handy Estate-Planning Tool by TODD C

HEALTH CARE LAW WWW.HEALTHCARENEWS.COM SEPTEMBER 2011 1 Deed with Life Estate Understanding the Pros and Cons of This Handy Estate-planning Tool By TODD C. RATNER, Esq.

our home is typically the most full owner(s) of the property, thereby sign this document, you give an actual inter- valuable asset that you own. avoiding probate. Avoiding probate saves est in your property to the remaindermen. Estate-planning and elder-law at- the estate the expense, time, and publicity From that point onward, should you ever Y torneys are frequently asked how of the probate process. wish to sell or mortgage the property, you one’s home can ultimately be transferred • Protection from nursing home liens: A and all of the remaindermen must agree to a client’s children without the necessity deed reserving to do so, and all of you would need to sign of probate or exposure to long-term care the necessary expenses. documents. One particularly useful and common In addition, document for this is called a deed with life This document may also in the event estate. It has many advantages; however, that any of the there are some issues that must be dis- make it possible for you to remainder- cussed and resolved prior to the transfer to live in and maintain control of men experi- ensure that it will be in the best interests of ence fi nancial all those involved. the property until your death. or legal diffi culties, such Demystifying the Deed as divorce or A deed with a reserved life estate is used bankruptcy, when you wish to both pass your real prop- a life estate is a gift that triggers a fi ve-year their interest in your property will be erty to someone upon your death and also waiting period for Medicaid benefi ts. Five considered an asset in the proceedings. As protect the property from nursing-home years aft er the transfer, the penalty period such, you should assess the risk for these liens. Th is document may also make it pos- expires, and Medicaid benefi ts can be potential diffi culties prior to transferring sible for you to live in and maintain control obtained without having to sell the home. your property. of the property until your death. Th erefore, this technique is best-utilized A deed reserving a life estate is not an Th e individual or individuals reserving when it is unlikely that you would be admit- option to be undertaken without serious the life estate are referred to as life tenants. ted to a nursing home within fi ve years. consideration. Th ere are other options Th e individual or individuals that receive a • Stepped-up basis: Since your home available when it comes to protecting your future interest in the property are referred remains an asset in your estate for estate- home from nursing-home costs or avoid- to as remaindermen. Th e procedure to tax purposes, at the time of your death, the ing probate. When determining your best complete this transaction involves the ex- remaindermen will receive a ‘stepped-up’ course of action, it is highly recommended ecution of a deed, which is recorded in the basis in the real estate that is equal to the that you consult an experienced estate- appropriate Registry of Deeds. fair market value of the real estate at the planning or elder-law att orney so that you Th e life tenant has certain duties and time of your death. Th is means that, when understand all considerations, options, and obligations to fulfi ll, including responsibil- the remaindermen sell the property, they alternatives. ❖ ity for paying real-estate taxes and home- should be able to avoid capital-gains tax if owner’s insurance, and making all repairs the property does not appreciate in value Todd C. Ratner is an estate-planning, and performing all maintenance required to prior to the sale. Th is typically helps reduce business, and real-estate att orney with keep the property in good working order. or eliminate your heirs’ potential tax li- the law fi rm Bacon Wilson, P.C. He is a ability. member of the National Academy of Elder Law Potential Beneﬁ ts Att orneys and the Estate Planning Council of Th ere are signifi cant potential benefi ts Inherent Risks Hampden County. He is also when utilizing a deed with life estate. As att ractive as this transaction sounds, a recipient of Boston Magazine’s Super • Probate avoidance: Upon the death there are some potential pitfalls and risks Lawyers Rising Stars distinction fr om 2007 to of the life tenant, the life estate is extin- that you should carefully consider prior to 2010; (413) 781-0560; guished. Th e remaindermen become the executing a deed with life estate. When you baconwilson.com/att orneys/ratner_2