Author Topic: Irrevocable trust for my Dad's house?  (Read 718 times)

Mr. Green

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Irrevocable trust for my Dad's house?
« on: June 22, 2018, 01:55:01 PM »
Is anyone here familiar with irrevocable trusts? I have a somewhat unique situation that I've posted about before but I'm wondering if an irrevocable trust might not worth looking at.

I own the house my father lives in. He is 65 and disabled (severe ADHD). He receives a small Social Security check $717/month) and he's on Medicaid due to his low income. I am his government appointed financial representative, as they do not deem him able to handle his own money.

My dad is almost completely self-supporting. His income covers all his bills but the mortgage. Even still, I am ever vigilant about ways to help make his money stretch as far as it can because he doesn't have much and he's made comments before about how hard it is to eat decent food on what little money he has. I know he dumpster dives on occasion and if I can "find" more money for him I want to explore that. The mortgage is very small (25k) so it would not be a problem for us to pay it off, in order to be able to give him the house.

In the past I had considered giving my dad the house to eliminate our liability. We're now FIRE and he's a bit eccentric with his hobbies and I was uncomfortable with our liability exposure, being the owners of the house. We have since taken some additional insurance measures, like getting him renter's insurance and changing the car he drives over to his name instead of ours, so I'm not really too concerned with liability anymore. The big drawback to giving him the house was that he has a bankruptcy in his past and I didn't want creditors to be able to come after an asset that is essentially ours.

If we were to place the house in an irrevocable trust in his name, I believe it would be safe from creditors. It's really our asset that we would want to get back upon his death. Having the house in his name would allow him to get a waiver from the county for property taxes based on his income. This would save almost $100 a month, which is a healthy chunk of $717. There are a couple other small impacts, like he would get a few more dollars in SNAP benefits, and he wouldn't need renter's insurance on top of homeowner's insurance.

Are there other considerations to an irrevocable trust I should be thinking about?

GizmoTX

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Re: Irrevocable trust for my Dad's house?
« Reply #1 on: June 22, 2018, 05:43:00 PM »
I would not give your dad the house, even within an irrevocable trust, because either way it's considered a gift. With an irrevocable trust, your dad would be the beneficiary & you'd be the trustee(s). A trust would shield the house from his creditors but your ownership already does that, so I don't see the point. You'll have to make sure it would qualify for property tax waivers and/or a homestead exemption. If you don't pay the house off, check with the mortgage holder to make sure the house can go into such a trust. If you want the trust to revert to you, either your dad must put this in his will (which is difficult since he no longer can make his own decisions) or the trust document must say so, but that makes it less than an arm's length transaction, which an irrevocable trust must be -- check with an estate attorney, who should be the one to address these issues & draft the proper language for your state. Since a trust is its own tax entity, the trustee has to file a return every year regardless of whether any tax is actually due.

Also look into putting the house into a revocable trust in your names, not his, usually styled as a family trust. This is useful if the property is located in a high probate state. You wouldn't have to worry about clawing the property back when he must vacate the property for nursing care or dies, but you already have that protection now by owning the house. I don't see what liability you are concerned about regarding the house. I agree that car ownership & insurance should be in your dad's name.

tralfamadorian

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Re: Irrevocable trust for my Dad's house?
« Reply #2 on: June 22, 2018, 06:54:10 PM »
If we were to place the house in an irrevocable trust in his name, I believe it would be safe from creditors. It's really our asset that we would want to get back upon his death. Having the house in his name would allow him to get a waiver from the county for property taxes based on his income. This would save almost $100 a month, which is a healthy chunk of $717. There are a couple other small impacts, like he would get a few more dollars in SNAP benefits, and he wouldn't need renter's insurance on top of homeowner's insurance.

Every trust is different in how it is written but in my (personal not professional) experience with irrevocable trusts, the above is only partially correct. The property would be owned by the trust; your father being the beneficiary would not give him an ownership interest. So, the property would be safe from his creditors but there would not be a property tax reduction based on his income or increase in SNAP benefits pertaining to home ownership. He would still need renter's insurance.

A couple additional things- this may be specific to the trust language but with the ones I have seen, it would be an issue for you to be trustee and successor beneficiary. One more that is a long shot but a significant downside to be aware of- if there was a situation in the future where you wanted to sell the house for your father's care (assisted living for example), the funds would have to stay in the trust and be taxed at the very high trust tax rate.

albireo13

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Re: Irrevocable trust for my Dad's house?
« Reply #3 on: September 21, 2018, 05:20:58 AM »
One thing to consider is would he end up going in to a CCRC??

  My folks put there house and some assets into an irrevocable trust years back.  Last year, it was time they decided to sell their house and move into a CCRC.
The gotcha was that they needed the proceeds from the house sale to afford the CCRC.

  However, the trust owned the house so, the sale proceeds go to the trust and my parents would have only limited access to the funds due to the terms of the trust.

In the end we had to dissolve the trust to make it all work.  It was a royal PITA and cost a bunch of $$ in legal fees.
Something to consider .....