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Learning, Sharing, and Teaching => Ask a Mustachian => Topic started by: cthulhu on November 29, 2012, 10:20:53 AM

Title: Estate Planning and Real Estate - who should I be talking to (and is it you)?
Post by: cthulhu on November 29, 2012, 10:20:53 AM

I have a property/inheritance dilemma that I need to figure out the best way to handle and am wondering who i should be talking to about it, and if that person is on this board or if i need a professional of some stripe.

The short version is - there is a piece of property owned by my grandmother, that stands to be inherited by 3 family members (of which I am one), assuming it does not need to be sold to pay for her end of life care.  She is looking at running out of other assets in about 5yrs, she's currently in reasonable health but is 94yrs old (and while i am of the opinion she should never ever die I realize that probably isn't an option).  As a family we are trying to determine the best time and ways to handle this property vs property sales taxes and step up basis stuff if its liquidated, all with the underlying elder care/social security/medicare type concerns.

Am I looking for a lawyer, a financial planner, an elder care specialist of some type - something else I haven't considered?  And if I need one of these people should I be looking for one in the state she lives in or can i get one convenient to me, essentially are these the type of questions one would need state specific expertise in.  Any thoughts on what I'm looking for and/or any advice on the situation itself?  Thanks,

Title: Re: Estate Planning and Real Estate - who should I be talking to (and is it you)?
Post by: RadicalPersonalFinance on November 29, 2012, 10:34:26 AM
If you'll answer a couple of quick questions, I might be able to point you in the right direction:

What state does she live in? (State law governs this.)
What kind of property is it?  Approximately how much is it worth?  (This tells me if we have a tax question or just a simple planning/disposition question)
Do the heirs have interest in owning the property?
You mentioned she'll run out of other assets in about 5 years...what type of assets are they?

You'll probably want to consult a financial planner to start with.  Depending on the size/value of the property/estate, the planner will send you to other professionals.  The planner's job is to be the central quarterback or point person.
Title: Re: Estate Planning and Real Estate - who should I be talking to (and is it you)?
Post by: cthulhu on November 29, 2012, 10:44:42 AM

the property, and the grandma, are in NH.  Its a summer cottage she's owned it her whole life so the step-up basis is going to be an interesting excersize in capital gains.  She is currently in an assisted living facility, this is her only property, but i assume it still counts as a second home as she doesn't live in it.

The retirement funds are coming out of a bond fund, and generally awesomely managed by my aunt.  The property is probably worth 500k (curse that lake frontage), and so represents a real source of money if she outlives the bond fund.

The family would like to keep it, and here's where i need someone, but we need to examine our options for transfer considering both property/cap gains taxes and the possibility of grandma needing to qualify for medicare at some point in the future, as we devise a strategy. 


Title: Re: Estate Planning and Real Estate - who should I be talking to (and is it you)?
Post by: DoubleDown on November 29, 2012, 12:24:01 PM
Absolutely allow the property to transfer to the heirs as part of her estate. You will all get the stepped up basis value of the property, you will not have to pay any capital gains taxes on it if you do sell (assuming the rest of her estate is not large, exceeding $2 million or on that order). Or, if you sell down the road, you will only have to pay the difference between its value when you sell and what it was worth at the time of her death.

The preferable way to do all this is for her to establish right now a Revocable Trust, also known as a Living Trust, and transfer ownership of the property to the trust. She should also create what's known as a "Pour Over Will" to handle assets not directly transferred into the trust. It would also be an exceedingly good idea for her to create an Advanced Healthcare Directive (or any other name it's known under) that dictates what measures, if any, she wants taken to keep her alive as her health falters one day. Same thing with a General/Durable Power of Attorney, etc., etc.

All of these documents together form what's known as her "estate plan." You can create these yourself, but typically people need to hire an attorney to create it. It will probably cost about $1,500 - 2,000 for an attorney to do this for her, but it's invaluable. And by paying now, you will be avoiding future costs upon her death which would likely be much higher (such as probate court fees, property title transfer fees, etc. -- I don't know what they are in NH).

In her trust assignment, she can name her intended heirs as the beneficiaries of the property upon her death. Nothing will have to go through probate since the property is already owned by the trust, and you will not have to re-title the property (unless you all want to for some reason). So while it will cost a few hundred dollars to transfer the title to the trust now, it's pay now or pay later -- you'd have to pay that down the road anyhow upon her death.

Something to keep in mind is that handing down property to multiple heirs can be very thorny and should be avoided at all costs. It is common for them to have differing views of how the property should be disposed or managed. Or they might all agree at first, but then life circumstances change over the years and now they disagree. One might be in need of money and insist on selling, while others want to keep it. What happens if one of the heirs has a child with a medical emergency or loses their job and legitimately wants/needs to sell, but another refuses to sell? Or the house needs repairs or improvements but not everyone is willing to contribute? Or someone is getting divorced and their greedy, soon-to-be-ex-spouse wants "their" share? These a couple of examples, there are many other problems that can arise.

I would highly encourage her to name just one of you as the sole Trustee and executor of her estate, who has the sole decision-making authority on what to do with the property.  Or she can direct that it should be sold upon her death and the proceeds divided between you all. Or that the property will be used by everyone equally throughout each year until it is sold, with one person making the decision on when/how to sell, and then the proceeds are divided according to her wishes. Or other variations you can think of. But the primary point is having three co-owners is a dicey proposition to be avoided at all costs.

If part of the equity is needed to pay for her ongoing living expenses as she ages, then a home equity line of credit or reverse mortgage against the property can provide that without having to sell it.

Personally I would not hire a financial planner. There is a ton of free information available that will tell you everything you need to know. But a reputable estate planning lawyer would be a very good idea to get her estate plan created.
Title: Re: Estate Planning and Real Estate - who should I be talking to (and is it you)?
Post by: chucklesmcgee on November 29, 2012, 03:30:41 PM
I second @DoubleDOwn in terms of what you should be looking at.

Your situation is a pretty standard. I'd suggest looking at Legal Zoom's offerings of living trusts, advance directives and wills. It'll cost you maybe $70-$400 depending on what you decide you need. Considering just how basic your situation is it doesn't make sense to pay an attorney $2000 to spend about 30 minutes copying and paste your names, addresses and property into a boilerpoint form and mailing it to the state.  Unless you have an incredibly complicated set of assets, the potential for other individuals outside your family to try and assert a right to her property or a vast estate I think an actual attorney is kind of overkill here.
Title: Re: Estate Planning and Real Estate - who should I be talking to (and is it you)?
Post by: Another Reader on November 29, 2012, 04:43:00 PM
There are two separate issues - how to pay for your grandmother's care and how to most efficiently pass the property to the heirs.

Having been through a somewhat similar situation, I agree with DoubleDown's advice.  The estate plan, the trust, and the titling of the assets should be done by a New Hampshire estate planning attorney as DoubleDown describes.  You do not want to buy your grandmother out, as she will incur a huge capital gain tax bill.  Gifting creates another set of problems.  Inheriting via a trust that bypasses probate with a stepped up tax basis is the best option in most cases. 

An attorney or elder care specialist in New Hampshire that is familiar with the Medicaid (not Medicare, Medicare does not pay for assisted living or nursing home care) rules and procedures in New Hampshire would be the person I would look for to deal with the cost of care issue.   Questions about how much if any of a home's value is excluded before Medicaid pays for nursing home care in New Hampshire would be answered by that person.  Assisted living is likely not covered by Medicaid.  Getting a HELOC on the property is a good idea, as long as your grandmother is mentally competent to sign the papers, along with a single trustee with POA.

Title: Re: Estate Planning and Real Estate - who should I be talking to (and is it you)?
Post by: RadicalPersonalFinance on November 29, 2012, 06:09:13 PM
The advice by Double Down and Another Reader is excellent.

There's no need to duplicate what they've written, so I'll just add a couple of quick comments.

Based on the value of the property, there's no need to worry about any estate tax problems, so your key points are mainly about her financial planning (making sure she has enough money to live on and for her care) and making sure the heirs have a good family situation (not arguing over a property) and that you retain the step up in basis on her death.

The trust route is the way to go.  Revocable living trust will accomplish it, as Double Down described. 

IMO, the most important reason to do the trust is to prevent the kids from becoming equal partners in a piece of real estate.  That almost always causes major issues as time passes.

If you're really concerned about her needing ongoing long-term care and you feel you have enough time, you might discuss Medicaid planning with an elder law attorney.  You'll have to decide how you feel about the concept, but conceptually, she could give away her assets which are greater than what is allowed by NH state law (personal residence/personal property limits) and then become impoverished, which would allow her to qualify for Medicaid.

Gifting the assets into a rev trust doesn't accomplish it, but potentially they could be transferred into an irrevocable trust and be removed from her ownership.  The property would be available for the beneficiaries and she would become eligible for Medicaid care.  Medicaid has a 5-year look back period to undo the transactions, so she has to survive that amount of time for this to work.

This is highly state dependent.  You need to speak with someone who knows NH Medicaid law.