Should I Put My House In A Trust?


Should I Put My House In A Trust?

One of the most common questions we get is “Should I put my house in my kid’s name?”

We are also asked “Should I put my house in the will so that when I pass away it goes through the probate process?” 

Focusing primarily on seniors and retirees of middle-class and upper middle-class families, if you are concerned about probate avoidance and long term care expenses, this is important information I am sharing with you.

Should I Put My House In My Kid’s Name?

Seniors often contemplate putting their house in their kid’s name, and I’m going to tell you why that is not a good idea. First, is there a reason why you don’t want to own your house in your senior years?  You may think there are huge death taxes due when you pass away, but this is not true. Federal estate tax doesn’t affect middle class families, and Pennsylvania’s death tax rate is only 4.5% if you have kids.

The other issue that people worry about, is protecting their house from the nursing home. This is a valid concern because the biggest financial threat that seniors and retirees face, is the risk of long term care costs. Nursing homes in Pennsylvania cost about $150,000 a year which is more than most of us can afford to pay. Since most of us may need some form of long term care, it is something we should be talking about and planning for. Often, middle class and upper middle class families do not know that they can protect assets, and they get told they only need a simple Will.

Not All Attorneys Do Estate Planning

Some attorneys work with families that have a high net worth, and they may tell you that since you are not wealthy, you only need a simple Will. Sometimes attorneys will try and sell you a simple Will because they don’t really know much about estate planning.

I have watched many families go broke from long term care expenses, because they only had a simple Will. The primary purpose of a Will is to distribute the leftovers once you pass away, assuming there’s something left. My concern for you is ensuring there are leftovers. If you get sick, but your spouse is still healthy, you would want to ensure that your spouse is provided for with a house to live in, and some money in the bank.

Meet Hank and Wendy

When prospective clients, Hank and Wendy came to our office to do some estate planning, we spoke to them to establish what their goals are. They own their home outright, and the house is worth $250,000.  Besides the house, they have $400,000 net worth, in bank accounts and investment accounts. They are retired, but they’re concerned that they don’t have a sufficient income for their retirement. They are also worried about what happens if Hank needs care in a nursing home. 

Most of the income is Hank’s retirement account, so if he goes to a nursing home he will spend all of this money. This means Wendy cannot keep the house because there will be property taxes, utility bills, and other expenses every month which she can’t afford. Added to that, most of Hank’s income has to go to the nursing home so Wendy won’t have his income anymore. As a result, there may not be enough money to live on, because of all the expenses. As the healthy spouse, Wendy may live another 20 years but she may run out of money.

Not Doing Asset Protection

If they don’t do asset protection, and they only have a Will, they will have to apply for Medicaid benefits if Hank needs care in a nursing home. Medicaid is the only payment source for long term care in a nursing home because Medicare doesn’t pay. To qualify for Medicaid benefits, they have to go broke before they are eligible. 

The Medicaid rules state that as the healthy spouse, Wendy can own a home. However, she can only keep $150,000 of the $400,000 net worth. Over the course of the next two or three years, they will spend $250,000 on long term care expenses. This is money that Hank and Wendy had been saving for the last four decades, for their retirement. Once they have done the Medicaid spend down, they are eligible for Medicaid benefits. 

Doing Asset Protection

If Hank and Wendy do asset protection and put their house in a trust, their house is protected. If Hank goes to the nursing home five years later, they won’t lose the house to long term care costs. Wendy doesn’t own the house as it is owned by the trust. Of the $400,000 that she has, she’s allowed to keep $150,000. However, instead of spending $250,000 on long term care costs, Wendy can buy a house. This house is her primary residence which according to Medicaid rules, she’s allowed to own. This means Hank is immediately eligible for Medicaid. They also won’t lose $250,000 but instead they can protect the house and 100% of their net worth.

Asset Protection Trusts

This is why I recommend putting your house into an asset protection trust. After five years, we’ve protected the value of your house from the potential risk of the nursing home. You still get to sleep in your house every night, while making most of the decisions and being in control.

I believe this to be a great plan for most middle-class and upper middle-class families. We don’t want to only help you answer the question of who gets to stuff when you pass away. We also want to ensure there are assets to leave when you pass away, so that your spouse is provided for. 

If you’re interested in answering these types of questions, your simple Will is not enough. The first step is to come to one of our upcoming estate planning and elder law workshops. Register on our website for a workshop or call us on 724 546 4227.