When it comes time to plan your estate, there are many ways to pass on real estate to avoid paying costly expenses. One transfer method with tax advantages that may work for some folks is known as the estate deed. Essentially, an estate deed allows you to transfer your home to beneficiaries but still live there and avoid estate taxes and the probate process.
When you create a life estate, you will own the property along with whomever you designate as a beneficiary. The person living in the home is known as the “life tenant” and has exclusive rights to the property during his or her lifetime. The life tenant can be one person or individuals with joint tenancy, as a husband and wife. It is important to note that the life tenant has the responsibility to maintain the property, pay taxes, and retain insurance on the dwelling.
The person who will eventually inherit the property is known as the “remainderman” and will have exclusive rights to the home upon the death of the life tenants. In addition to the remainderman being able to avoid probate court to transfer the property, he or she also has the advantage of step-up capital gains tax rates. With a step up capital gains tax, the person inheriting the home would pay taxes only based on the value of the home at the time it was inherited, not when the deceased purchased the property.
In order to sell the home while the life tenant is still living, both parties need to agree to the sale and each side is entitled to a portion of the profits. However, life tenants need to keep in mind that the proceeds from any sale may affect their ability to qualify for Medicaid benefits like a nursing home or skilled in-home care. It is also important to note that in 2014 Wisconsin changed its laws to allow the state to recover a portion of the life estate property if the life tenant received Medicaid benefits.
If you need to transfer your home to a family member or other beneficiary and do not rely on long term care provided by Medicaid, a life estate may be a good fit for you. However, should you end up needing long term care from CMS, you could end up leaving your beneficiaries with a hefty financial burden upon your passing. Whatever you decide, make sure to take the time to consider all the advantages and disadvantages of your estate plan and ensure your heirs receive the greatest benefit from your assets.
Madison Trust and Estate Lawyers
The estate lawyers of Krause Donovan Estate Law Partners, LLC practice law in the areas of Probate, Wills, Estate Planning, and Trusts. We assist clients in and around Madison, Wisconsin with all matters related to estate planning, trusts, and probate matters. We invite you to request a consultation with one of our experienced estate planning attorneys.