By Dan Surprenant, Esq., CELA, Managing Partner
Life Estate Deeds sound simple: You get to live in your house for life, and it passes directly to your children after you’re gone. They avoid probate and can even protect your home from nursing home costs. Sounds perfect, right? Not so fast.
This article unpacks the hidden dangers of Life Estate Deeds and explores better options for protecting your home.
The Benefits (They Seem Great!)
- Avoid Probate: Skip the lengthy and expensive court process when transferring your property.
- Protect Your Home (Maybe): If irrevocable, a Life Estate Deed can shield your home from Medicaid liens (check with an attorney for details).
The Hidden Dangers (Uh Oh!)
- Selling Your Home? Think Again: If you need to sell the house while you’re alive, you only get a portion of the proceeds, based on your life expectancy. That portion shrinks as your life expectancy shrinks. The rest goes to your children (the remainder beneficiaries), and guess what? They will owe capital gains tax if they do not live there!
- Reverse Mortgages? May not be an Option: A reverse mortgage can be helpful if you are out of money, and don’t want to sell your home. However, Life Estate Deeds often prevent you from taking out a reverse mortgage if even one child refuses to sign off. A reverse mortgage may be an appealing option in order to afford to keep a loved one at home versus in a facility for long-term care.
- Family Feuds Over Equity: Imagine needing some cash from your home’s value, but one child on the deed refuses to allow a reverse mortgage. You’re stuck!
Real Life Example:
A couple has a Life Estate Deed with their children as remainder beneficiaries. Their million-dollar home is their only real asset. They need a little cash but can’t get a reverse mortgage because one child refuses. Now, they struggle financially to keep the house they can’t fully access.
The Bottom Line: Explore Your Options!
Life Estate Deeds can be risky. There might be better ways to protect your home and maintain flexibility.
What to Do Next:
- Talk to an Attorney: An experienced estate planning lawyer can discuss your situation and recommend the best approach for your needs. They can also ensure the deed is drafted correctly to avoid future problems.
- Consider Alternatives: Living Trusts, for example, offer more control and flexibility while achieving similar goals as a Life Estate Deed.
Don’t let your dream home become a financial burden. Get informed and explore all of your options before making a decision.
Contact Us Today!
We at Surprenant & Beneski & Nunes, specialize in estate planning and can guide you through the process. Schedule a consultation to discuss your unique situation and discover the best way to protect your home and your family.
