Estate Planning with the Family Home – What to do with an important asset

For many people, their most important and valuable asset is their family home.  What to do with your residence is a critical issue to consider when developing your estate plan.  There are several options available, and the following questions and answers cover the basic strategies.

Should I transfer my home while living?

There are several options to transfer your home when you are living, and whether they are right for you depends on your particular goals and circumstances.  The basic options include:  transferring your home outright, transferring your home and retaining a life estate, deeding your home to a trust, and doing a transfer on death (TOD) deed.

Why do a lifetime transfer?

A lifetime transfer of your home may make sense if you are interested in long-term care (LTC) planning or want to make it easier for your beneficiaries to receive your home after you pass away.  By “LTC planning”, I am referring to a transfer of your home which would protect it in the event you were admitted to a nursing home and wanted to apply for Medicaid.

How does LTC planning work? 

Generally speaking, if you want to engage in LTC planning, you would either transfer your home outright to a beneficiary, transfer it to a beneficiary and retain a life estate, or transfer it to an irrevocable trust.  For LTC planning to be effective, you must not apply for Medicaid to pay for nursing home care for at least five years after the transfer.  This five-year period is known as the “look back period”.

What are the differences?

Transferring your home outright is generally not favored because you would lose all control of the home, you would lose your STAR exemption, and your beneficiary would not get a step-up in tax basis when you pass away.  Transferring your home and retaining a life estate allows you to continue to live in the home without question, allows you to retain your STAR exemption, and gives your beneficiary a step-up in tax basis.  Transferring your home to an irrevocable trust gives you all the benefits of a life estate deed with additional flexibility.

What is the most common option?

Most commonly, people who are interested in LTC planning will transfer their home to an irrevocable trust, which is sometimes referred to as a Medicaid Asset Protection Trust (MAPT).  The additional flexibility of a MAPT includes the ability to change the beneficiaries.  You may also sell the home while you are living and purchase another home or invest the sale proceeds and receive the income generated by those invested funds.

Are there other options?

Yes.  There are certain exceptions to the five-year look back period rule.  For example, you may transfer your home to your spouse right before you enter a nursing home, and the transfer will not negatively affect your Medicaid eligibility.  You may also transfer your home to a caregiver child without an adverse effect on your Medicaid eligibility.  A “caregiver child” is a child of yours who has lived in your home for at least two years and provided care to you that prevented the need for you to enter a nursing home.

What if LTC planning is not a goal?

If LTC planning is not a goal of yours, then you can still consider the life estate deed as an option.  Another option that is relatively new in New York law is the transfer on death (TOD) deed.  The TOD deed allows you to name a beneficiary of your home after you die.  It has no value for LTC planning, but it will prevent the need to administer a trust or probate a Will after your death to facilitate the home transfer to your beneficiary.

How is it different from a life estate deed?

A TOD deed is different from a life estate deed because you can change the beneficiary at any time before you die, without the consent of the beneficiary.  By contrast, if you transfer your home to a beneficiary and reserve a life estate in a life estate deed, you cannot change that beneficiary without his or her consent.

What other options are there?

If LTC planning is not a goal of yours, then you can leave your home to a beneficiary in a revocable trust or your Last Will and Testament.  In contrast to a MAPT, a revocable trust does not protect your home for LTC purposes, but it will eliminate the need to probate your Will to transfer your home to your beneficiary.  Since a revocable trust is generally revocable and amendable as you see fit, you can change the terms, including the beneficiaries, whenever you wish.

What about using my Will?

If you properly execute a Will and you own your home at the time of your death, then your Will can provide for the transfer of your home to whomever you like.  Your home can be left to a beneficiary specifically, i.e. “I give my home to my son John” or it can pass as a part of a residuary clause, i.e. “I give the rest, residue, and remainder of my estate to my son John”.

As you can see, there are multiple options for the transfer of your home to beneficiaries either during your lifetime or after you pass away.  Which option is the best for you depends on your particular goals and circumstances.  In order to choose the best option for you, it is advisable to have a discussion with an experienced estate planning professional. 

Matthew J. Dorsey, Esq. is a shareholder with O’Connell and Aronowitz, 1 Court Street, Saratoga Springs, New York.  Over his twenty-nine years of practice, he has focused on the areas of elder law, estate planning, and estate administration.  Mr. Dorsey can be reached at (518) 584-5205, mdorsey@oalaw.com and www.oalaw.com.