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LegalGems
LegalGems, Attorney
Category: Estate Law
Satisfied Customers: 9905
Experience:  Private Practice; Elder Law Attorney; Estate Planning; Attorney Mentor
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We are buying a Condo with some financial help from our

Customer Question

We are buying a Condo with some financial help from our daughter. Is is better to put her on the title at closing or on a Life Estate
with the condo going to her on our death? Is a life estate similar to a Living trust and can it name specific assets (condo) that would go to my daughter? Thanks , Barry Nelson
Submitted: 1 year ago.
Category: Estate Law
Expert:  LegalGems replied 1 year ago.

A living trust allows the settlor (the owner of the property) to change the beneficiaries at any point because it is revocable, so it can be a very useful estate planning tool. For a living trust, the trust is basically its own legal entity- the trustee (who can also be the settlor) and the trust are named as the legal owner of the property that is listed on the Schedule of Assets, and this property will all be distributed according to the terms of the trust when the settlor passes and the successor trustee takes over the trust.

The trust also helps avoid probate, a timely (around 1-2 years) and costly ( approximately 3-4% of the assets of the estate goes to the cost of probate) and public proceeding (it is all a matter of public record).

A trust also negates the need for a power of attorney or conservatorship as that is all addressed in the trust document.

Also, when a person names a person as heir to an inheritance, that person receives a "stepped up basis" for capital gains purposes, so they receive the property at the fair market value on the death of the owner, which basically wipes out any prior capital gain. This applies for both trusts and life estates.

A concern for many people with a life estate is that the creditors of the remaindermen (the person who will own it after the life estate is over) can still access that property during the life of the life tenant. This is because the ownership is being transferred to some extent immediately (it is a recognized and quantifiable property interest).

If the life tenant requires nursing home care within five years of signing a deed reserving a life estate, they would have to privately pay for this care until the remaining penalty period ended or the remaindermen would have to deed the property back in order to “cure” (correct) the gift.

If after the five year period the person is later admitted to a nursing home and receive Medicaid benefits, the Medicaid office will place a lien on the life estate for the value of services rendered. This lien is released upon death which leaves the remainderman's interest unaffected.

So as you can see there are many considerations;

I find from personal experience that estate planning is one of those areas of the law where one is almost guaranteed to get any legal fees spent in estate planning back in spades; a good estate plan takes several hours of working closely with an attorney to examine which situation is best for the individual, based on expected needs (ie nursing home care), the needs of any special needs adult children, concerns re: possible divorce issues with adult children, etc.

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Information provided is for educational purposes only. Consultation with a personal attorney is always recommended so your particular facts may be considered. Thank you and take care.

Customer: replied 1 year ago.
Question was - is having daughter on title at closing better than on family trust?
Expert:  LegalGems replied 1 year ago.

I'm sorry; I thought one also wished to understand the differences between the life estate and the trust based on the original question.

It would depend on what the parties are trying to achieve; for example, if the individual is named on the title at closing, then that does affect the capital gains issue mentioned (the stepped up basis).

It also allows the individual's creditors to sue -for example, if involved in an accident (at fault) or any type of legal proceeding, a judgment debtor could attach that real estate.

There is also the issue re: any possible loans- most lenders require everyone on title to be listed on the loan -but that varies based on lender.

Then from an insurance perspective, anyone named on title would have to have insurance in order to avoid liability for anything occurring at the property.

So many people will prefer to draft a promissory note or deal with the gift tax issue (not really a concern since the lifetime exemption is over $5 million) so the individual does not have an ownership interest, and then if they wish the person to inherit upon death, they will have the proper estate planning document of their preference (will, trust) to effectuate that transfer upon their death.

Expert:  LegalGems replied 1 year ago.

Hopefully you have decided how you want to title your property; congratulations on your new home.
Thanks for using JA!