By Ruth Fortune
“My friend put her house in her childrens’ names” … “my neighbor says I should put my son on my bank accounts.”
I hear that question often. So often in fact that I can tell within minutes whether the main motivation is mere convenience, or is to protect assets against the cost of long-term care.
And, many times it’s both – whether or not the person asking knows it at the time.
The families who ask me this question generally have experienced firsthand
- how expensive long-term care can be as their own elderly parents, aunts and uncles spent down their life’s savings to pay for their care in their final years
- the struggle to quickly access a parent’s accounts to help pay bills or funeral expenses
- having to file a petition with probate court on behalf of a deceased loved one
There’s a smart way to protect assets against the cost of long-term care and there’s a foolish way to do it.
Effectively protecting assets against the cost of long-term care should mean you are
not sacrificing your own needs in order to preserve your assets for your children.
In other words, you shouldn’t be exposed to more risk than you were before you transferred the assets.
If you put your house in your children’s name outright, you are exposed to more risk than you were before you transferred your house. If any of your children are getting divorced, being sued, or facing financial hardship, you could lose “your” house because legally, it’s not “your” house. It is now your children’s house. You have no control over whether or not your children mortgage or sell the house, even if you are still living in the house.
To mitigate all these risks, one option is to transfer your house to a Medicaid Irrevocable Trust (MIT). The MIT is a legally enforceable arrangement that allows you to transfer real estate and financial investments to someone else, called a trustee, who holds the property for your children. The trustee can be one or more of your children. The MIT also has substantial tax benefits and you retain some indirect control. In some instances, you can transfer your house to your children and reserve a life use to retain control during your lifetime.
There are other ways…
Convenience for some is primarily probate avoidance. Convenience for some is having a child who can access the accounts to pay bills and help manage their affairs. However, adding your children as joint owners on bank accounts or transferring assets to them outright is not the only way to avoid probate or allow them to manage your affairs.
You can name one or more of your children as agent under a power of attorney to manage your financial affairs, including giving them access to your bank accounts.
When there is more than one child in a family, transferring assets outright or adding one to the bank accounts can lead to one of the children receiving a disproportionately larger inheritance than the others. Why? I rarely see parents with multiple children add all the children to their bank accounts or transfer the house to all of the children. Usually, the “most responsible child” or the child who is most involved in the parents’ affairs is the only one added to the accounts because it’s convenient. And that child can end up with a larger share, intentionally or unintentionally. At worst, it can cause friction among your children upon your demise.
There is no one size fits all solution because not every family is the same. If you are considering transferring any assets to your loved ones, evaluate your motivations then educate yourself to minimize the risks. I encourage you to not make your decisions alone. Protect yourself by evaluating your options with one of our estate planning and elder law attorneys. Give us a call and we’ll give you a hand.