One of the goals people often have in estate planning is to avoid probate – the legal process that administers and settles an estate. Probate has the reputation of being costly and taking too much time, and this reputation is well deserved. But to avoid probate, you should work with an estate planning attorney, in order not to make this costly mistake.
Transferring your home into the name of a family member can be such a mistake. All too often, we have seen people execute deeds that include other family members, in an effort to avoid probate. One of the most common types of deeds that people choose to use is a life estate deed. Normally, a life estate deed reserves the right for the owner to live in the home for the remainder of his or her life, and then upon death, the property belongs to the designated family members.
Although a life estate deed does indeed avoid probate, it can cause several problems within an estate, such as:
- The transfer may be counted as a gift for federal income tax purposes – if it does qualify as a gift and this is found at a later date, it will have been unreported and may result in years of accrued interest and penalties.
- The inability to sell or refinance the property without the consent of all owners; and
- A period of ineligibility for Medicaid benefits if the transfer is made during the five-year “look back” period.
There are instances when a life estate deed may very well suit a family’s needs, but do not “try this at home,” as they say. An estate planning attorney can work with you to meet your goals so you do not face any surprises or unintended consequences further down the road.