Ever wondered about the most effective ways to protect your home deed and navigate the often complex world of estate planning? Prepare to pull back the curtain on the realities of transferring property into your child's name, as we analyze the potential pitfalls of such a decision and the significant capital gains tax bill it could generate for your loved ones.
In this engaging dialogue, we unpack the magic of a tool known as a Ladybird deed, or an enhanced life estate deed, that allows you to maintain control of your property and seamlessly transition it to a loved one upon passing, all while sidestepping the probate process. We also take an intriguing look at the look-back period for long-term care Medicaid, offering invaluable insights to guide your decision-making process. So, buckle up, and get ready for an enlightening journey through deed protection and estate planning.
Speaker 1:
So let's talk about deed protection. I'm at an age where I feel like I need to transfer. I hear this question every once in a while. You know what age should I transfer my house into my children's names? I don't like that, because it means someone wants to give away their house while they're alive, because of a system of the high cost of nursing home care or, you know, of some kind of fear that the governmental benefit is going to come in and take the house when they pass away. Sure, only if it passes through the will, by the way.
Speaker 2:
Yeah.
Speaker 1:
Okay and and I just don't like that system. It doesn't sit well to me and it doesn't have to be that way. There are many ways to protect the house and other real estate Right, and one way is deed protection. Okay, so another danger of transferring the house directly into your kids names is you know, if I paid $5,000 for that house when I came out of World War II, wwii right and, and now that house is worth $500,000, which is totally possible with real estate Right Then I've given my children or child, if they sell the house, a capital gains tax bill that would be valued or derived from the cost basis in that property $5,000 versus the sales price of $500,000.
Speaker 1:
Right, so that is $495,000. That capital gains tax would be levied on on that gain. And you can avoid that by passing the property through some type of act of inheritance, which could be through a will, deed, transfer it, death or trust. You can also avoid in some deeds right, you can avoid probate right so you could use own it to your die and then maybe your spouse you know, husband and wife owns it till they die or a single person and then pass it on to say to children at my death. How would I do that?
Speaker 2:
Yeah, so you know, thinking about the goal of avoiding probate to avoid creditors coming after the property, avoiding a long-term care bill going after the house, you know I get why people might want to transfer ownership interest in their house to a third party, another person, like a….
Speaker 1:
Plus, I don't own the house anymore. I mean, you know if my daughter gets mad at me, right?
Speaker 2:
Or their spouse. You might have raised your child correctly but you hopefully then raise their spouse right. So Lord knows what that person may want to do. And again, you know with spouses, they have marital interest in property. So if you transferred it to a child, their spouse has marital interest in that property.
Speaker 2:
So dangerous thing If they get sued, go bankrupt, get divorced or God forbid pass away, there goes the house right. So we want to prevent that from happening. What we want to do is we want to keep you in control of the property. That's one of the goals, right? So if we're doing an estate plan for you, we don't want you giving up control over your money or property. Okay, we want protection and control. So if we are going to set up something right, ideally we would have the property in your name, under your control for the rest of your life and then be able to avoid probate, where the property passes automatically to a child, a loved one, whoever you want to leave it to one or multiple people and avoid that dangerous probate process without having to give up some type of you know ownership interest in the property.
Speaker 1:
What would it do like that be called?
Speaker 2:
That's a ladybird deed.
Speaker 1:
Okay.
Speaker 2:
Yep, that's what we refer to as a ladybird deed. That's the nickname. Now it's also known as an enhanced life estate deed, meaning that you're saying this is my property for the rest of my life and it's not going to anyone until me and my spouse both die, okay, and then it automatically avoids probate, goes to whoever I want to leave it to again, one or multiple people.
Speaker 1:
That is phenomenal. So that's a tool to protect the house. I heard that there's this look-back period five years for long-term care Medicaid. Yeah, so I've got to make transfers outside of that to qualify for long-term care Medicaid. Would this violate that look-back?
Speaker 2:
rule. So another reason why you don't want to just give away ownership interest in the property is you're triggering a look-back period for possible benefits, whether it's Medicaid or VA. So it's three years for VA, three years for assisted living level Medicaid and five years for skilled nursing level care. That means that there's a window that DSS or the Veterans Affairs looks at to determine whether or not you've given away an asset to help you qualify for benefits to pay for long-term care. And if you have, they can penalize you, they can deny your benefits for long-term care. So you want to be very careful about just transferring ownership.
Speaker 2:
So the question is does something like a ladybird deed, you know, trigger that look-back period? And the answer is no, and the reason why is because you're not giving up any interest in the property. You keep all interest in the property. That's the beauty of the deed. Now it's not available everywhere, but we like to utilize it here in the state of North Carolina because we do have it available here and so we are happy to ensure that property is protected. Especially you know your primary residence with that tool.
Speaker 1:
I would like to offer a free consult to sit down with an attorney and review your estate plan and talk about what tools and estate planning would be right for you. You can take advantage of that free consult by going to mclderlawcom that's M is in, Mike C is in Charlie elderlawcom, or calling 1-888-999-6600. And thank you so much for joining us today.