In certain situations transferring a residence with the retention by the owner of a life estate is a common technique. The life estate provides the transferor with a level of comfort in knowing that their legal right to remain in the property for life is reserved in the deed, and that the life estate cannot be extinguished by a future sale, unless consented to. The retention of a life estate has advantages in terms of the transfer penalty period calculation if nursinghome care is required, as explained below. However, once the life estate is in place, the house will not likely be able to be refinanced or mortgaged.
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Estate Law,
Estate Planning,
Life Estates,
Elder Law,
trusts,
Estate Tax
I. 2011/2012 Gifting Before Sunset
A. $5 million exclusion amount for gifts/estate/Generation Skipping Tax (GST)
B. Change of planning strategies
1. Gifts to Grantor Trusts rather than sales
2. Restructure prior sales that used guarantees
3. Increase use of Qualified Personal Residence Trusts (QPRTs)
4. Gift splitting up to $10 million
5. Larger gifts to life insurance trusts to avoid Crummey letters
C. Claw Back on Sunset
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Tags:
Estate Law,
Estate Planning,
Life Estates,
Minimize Taxes,
Elder Law,
trusts
I. CHOOSING THE STRATEGY TO USE FOR DIFFERENT TYPES OF PROPERTY
a. Real Property
A qualified personal residence trust ("QPRT") is a technique for gifting residential property at discounted values. The QPRT is an irrevocable trust, which becomes the legal owner of the home during the trust term. The grantor would continue to live in the home during the term of the trust, and continue to pay the real estate taxes, mortgage and maintenance expenses; the taxes and interest can be deducted on the grantor's personal income tax return, as it was before. The grantor must remain personally and contractually bound to the trustee to pay off the mortgage indebtedness in order for the amount of the mortgage to be disregarded for valuation purposes. At the end of the term, the beneficiaries would legally own the home but the grantor's spouse may have the right to live in the house for his/her lifetime. At that point, the grantor may also remain living there due to spouse’s life estate. Should the grantor's spouse predecease, the grantor could remain living in the house as long as fair market rent is paid. The term of the trust is a period of years, selected by the grantor. The longer the term, the greater the tax benefits. However, if the grantor does not outlive the term, any tax benefit of this strategy is lost.
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Estate Law,
Estate Planning,
Life Estates,
Asset Protection,
Minimize Taxes,
Elder Law,
QTIP,
trusts
I.PROTECTING THE RESIDENCE
a. Life Estates
An estate is used to express the nature, duration or extent of an interest in land. A life estate is an estate which is measured by the life of a specified person, by the joint lives of two or more specified persons, of by the last survivor of two or more specified persons.[1] A right to use and occupy is not a life estate.[2]
Advantages of a Life Estate:
- Right to live in house.
- Removes remainder interest in the house from Medicaid estate after five (5) years of transfer.
- Medicaid will only count the value of the remainder interest on transfer, which is a significantly lower value than if the whole were transferred.
- Original owner still maintains full control of property and its management also retains Veterans and STAR tax exemptions.
- Full value is included in original owner’s estate for tax purposes, but remainderman still receive a full basis step up to fair market value upon death.[3]
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Estate Law,
Medicaid And Assets,
Life Estates,
Asset Protection,
Advanced Elder Law,
Elder Law,
QTIP,
Asset Protection for the Elderly
I. LIFE ESTATES
1. Definition:
a. An estate is used to express the nature, duration or extent of an interest in land. A life estate is an estate which is measured by the life of a specified person, by the joint lives of two or more specified persons, of by the last survivor of two or more specified persons.[1]
b. Right to use and occupy is not a life estate.[2]
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Estate Law,
Medicaid And Assets,
Estate Planning,
Asset Protection Trust,
Life Estates,
Asset Protection
1. Simple Trust: A simple trust requires all income to be distributed annually to named beneficiaries. Income of the trust is taxable to recipient.
2. Complex Trust: A complex trust does not require all income to be distributed annually. The trust provides that income may be distributed to beneficiaries or accumulated. Income of the trust is taxable to recipient to the extent distributions are received.
3. Grantor Trust: A grantor trust is a trust in which all items of income, gain, loss or deduction will be reported on the grantor’s personal income tax return.
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Tags:
Estate Law,
Dynasty Trusts,
Estate Planning,
Life Estates,
Asset Protection
A life estate is a planning tool that is widely used to avoid probate, or help ensure your desired distribution of your real estate after death. However, it also features several significant drawbacks that must be carefully considered.
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Tags:
Estate Law,
Residence Trust,
Life Estates
