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Elder Care: Circumstances of family home transfer (Part 1 of 3)
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Elder Care: Circumstances of family home transfer (Part 1 of 3)

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This is the first of a three-part series to review options of how to transfer the family home from one generation to the next.

This week’s article reviews a variety of circumstances that affect how options may be considered for the transfer of the family home. Next week, we will review how to preserve and share the home when multiple children are involved. The concluding article will review the best economic alternative when the last of the parents is in a nursing home and the home is no longer needed by any family member.

For both emotional and financial reasons, preserving the family home is the top estate planning priority of many people. There are different strategies to consider, depending on circumstances and motivations of parents and their adult children.

A few years ago, we helped a grandmother who had just entered a nursing home to convey her home to her 21-year-old grandson. Our creative strategy got special approval from the Department of Human Services (DHS). The details of our legal strategy are not as interesting as the circumstances of why this was so gratifying to accomplish.

Grandma’s home had been built by Grandpa 60 years earlier on a lot that was subdivided from the original family farm, which had been whittled down and used for housing lots over a couple of generations. Grandpa was no longer a farmer, and the substantial stone house that he built was all that remained.

His sons were middle-aged and had homes of their own, which were in better shape than the family homestead that Grandma had recently vacated. Grandma had no money to speak of, but the knowledge that her grandson would keep ownership of the home in the family, and was willing and able to do the work needed to build sweat equity in the home, was what mattered most to her.

Diplomacy is needed when no one in the family really wants to assume ownership of the family homestead. Sometimes that happens when the children have left the area to pursue careers in other geographic areas. Other times the old family home is functionally obsolete or in need of major repairs. For some adult children, the thought of living in the house where they were raised is not as emotionally attractive as their parents imagine it might be.

Sometimes children allow parents to believe that they want the home because they don’t want to hurt their parents’ feelings. This can be an issue when a parent is the first homeowner in family history, or when the parent designed or built “the perfect home.” Parental homeowners can be deaf to their children’s lack of interest in succeeding them in owning the home.

Other times the adult children are living in the family home, either to care for their parents, or because they have special circumstances that have disabled their ability to live independently. In both cases, there are techniques to transfer the home to such a child without violating a regulation that would prevent the family from getting Medicaid assistance to pay for a parent’s long-term care expenses.

There are strategies that can be used to share the family home intergenerationally in a way that is compatible with strategic planning to pay for long-term needs. We use “the family caregiver exception,” when an adult child or sibling has been living with the parent for two years as a caregiver before the parent needs nursing home care. If the caregiver is a grandchild, or even an unrelated party, we can update the Will to leave the home to the caregiver, who will have a defense during probate against an estate recovery action by DHS.

A life estate is a form of property ownership that must be created artfully with consideration of both Medicaid eligibility and tax regulations of the IRS. A life estate deed includes an owner who is a “life tenant,” which is nearly always the parent. The child owns the “remainder interest” and gets ownership of the house automatically upon the parent’s death.

A future need to obtain a loan using the house as collateral is an issue to consider with a life estate. Most lenders shy away from life estate financing. The federal “Freddie Mac” mortgage program is a good option.

A child with a mortgage payment due to a lender may not add parents to the deed as life tenants. The lender reserves the right to foreclose on the house if the child is delinquent in paying the mortgage. No successor party would pay market value for a foreclosed property, subject to an older adult’s right to live there for the rest of his/her life.

Sometimes adult children are not needed as caregivers, but both the parents and the child agree that the child’s future ownership of the family home would be a win-win for both parties. Usually, it is important for various reasons that the home ownership is eventually conveyed at fair market value, which can be determined by either an appraisal or the adjusted tax assessment.

Other families recognize and accept that none of the children really want to live in the home, but the home is important as the parents’ most valuable asset. In such circumstances, parents usually desire to divide the proceeds from the future sale of the home equally among their children after the parents are both deceased.

There are occasions that the adult children have neither an emotional attachment to the family home nor an economic dependence on getting a sum of funds from its eventual sale. While that might seem to simplify matters greatly, it can be difficult for some parents to accept. In those situations, sometimes the home is held and maintained until after the parents’ death to avoid their emotional disappointment.

Next week’s article will explain why it is almost never a good idea for parents to transfer their home’s deed into the name of an adult child or children; and why use of a trust might not always be the best option.

Learn more about the article’s author, and other community education opportunities, at www.keystoneelderlaw.com. Check out the book, “Long Term Care Guide: Essential Tools for Solving the Elder Care Puzzle,” at the Whistlestop Bookshop or Amazon, and see Keystone’s free directory of services for older adults at www.mypeaceguide.com. Keystone Elder Law has offices in Mechanicsburg and Carlisle. Call 717-697-3223 for a free telephone consultation.

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