Aging and Home Ownership

In meeting with clients across the state, I find a surprising amount of confusion surrounding home ownership. Not who owns the home and lives it, but how the deed reads. The legal stuff, especially concerns about inheritance and Medicaid planning.

There was the lovely lady whose husband had been killed during World War II. She had never put the house into her name. True, she had inherited the property and lived there legally, but taxes and insurance still came addressed to a man gone over 50 years! (Back then, it was common for the property to be in the name of the husband only. Now, traditional and non-traditional couples usually have both partners on the deed.) As a gift to her children, she agreed that it might be a good idea to update her deed.

Not quite so many years ago, homeowners were advised to protect their property from Medicaid by putting the house in their children’s names. Unfortunately, younger people are statistically more likely to have legal problems. If the children own the home it could be attached in a lawsuit or made part of a divorce settlement, putting the parents at risk. Not surprisingly, most attorneys and estate planners don’t advise this anymore.

An irrevocable trust was another way of protecting the home from Medicaid. The owners place the home in a trust and can live out their lives in the property. When the parents die, the children or other beneficiaries take over as the new trustees. These are not used very often anymore, the problem being loss of control. The person who put the house into the trust cannot take it back out. That’s the irrevocable part. Lenders are reluctant to loan due to the possibility of future conflicts with the beneficiaries, making it much more difficult to access equity in the home.

What I see more of now are revocable trusts or life estates. A life estate is fairly simple. The property is signed over to the heirs, but the owners hold an interest during their lifetimes. They can sell or get a mortgage and manage the home as they choose. At the time of inheritance, the home passes to the heirs automatically, without going through probate.

Revocable trusts accomplish the same thing, but are far more complicated and expensive to establish. Although I have seen homeowners of modest means with revocable trusts, they are of the greatest benefit to people with considerable wealth.

So, we have gone from wanting to protect our homes from Medicaid to protecting them from probate. That is because two generations ago people planned to get onto Medicaid, which meant spending down to the qualifying level. Now, most people are doing Not Medicaid planning. After all, who wants to plan on being poor?

Of course, none of this is meant to be legal advice. The purpose here is first to remind people to check the status of their property deed; don’t assume a solution 10 or 20 years ago is still a good idea today. Consult a qualified estate planner or elder law attorney if you are worried about inheritance or Medicaid issues with regards to your home.

Legal stuff is a part of aging and we all know that Aging in Place doesn’t happen by accident.

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About the author

Scott Funk has specialized in Home Equity Conversion Mortgage reverse mortgages for over a decade. He is a recognized Aging in Place advocate in his home state of Vermont. His monthly newspaper column Aging in Place has run for 7 years in 24 papers around the state. Scott is brings a lighthearted approach to his talks on Boomers, retirement and aging on purpose.