How To Protect A Delayed Gift of Real Estate

Friday, January 3, 2020

    A question sometimes comes up in estate planning situations where a parent wants to be sure that a child gets a home or some other certain piece of real estate, but does not want to transfer the property immediately.

    In these situations, the parent often wants to be sure that a divorce, an under insured accident, or long term care costs will not result in the property being lost, and not passing to the child.  The parent wants to continue to have as much control of the property as possible during their lifetime, however.

    It is important to know that if the parent deeds the property to the child as a tenant in common, or even not as a tenant in common, but with right of survivorship, the parent will no longer be able to exclude the child.  The child will have the right to move in, and will have all the rights of an owner.
    The child could also sell or otherwise lose their ownership interest to a third party, who would then also have current rights to occupy or otherwise use the real estate.  This gets particularly unpleasant if the real estate is the parent’s home.

    It is also important to know that if the parent creates a life estate, and gives the remainder interest to the child, the life estate will be given a very unrealistically high value for Medicaid purposes, the elder will not be able to transfer the life estate without creating a period of Medicaid ineligibility, and the State will be able to recover the unrealistically high value that they set on the life estate after the elder dies, even though no other creditor in the world can collect from a life estate holder after the life estate holder dies.  For more on Life Estates, please see the article on Life Estates in this series.

    In a situation of this kind, where a parent does not want to transfer control of the property immediately, but wants to ensure that the property will not be lost to unfortunate circumstances in the future, it can often be wise to retain something less than a life estate, by retaining certain exclusive rights, like the exclusive right to use or rent out the property, while also spelling out duties that go with these rights, such as the duty to maintain the property, pay taxes, and the like, and deeding the rest to the child.

    The retention of something less than a life estate might be accomplished by stating that the parent’s rights to the property (and duties in respect of the property) vanish if the parent leaves the property for more than six months, or leaves with the intent of moving away permanently, or the like.

    If the property is something other than the parent’s home, some other right that a life estate holder would have if it were a real life estate situation could similarly be withheld from what is retained by the parent.
    A good lawyer, looking at the situation, could advise on what deviation from a life estate might seem most appropriate in any particular situation.  This will differ from situation to situation.