Many of our clients choose to transfer their homes to a Medicaid Asset Protection Trust. They do this because they want to start the clock ticking on Medicaid’s five (5) year ineligibility period caused by gifting of assets. This is only one part of the over-arching plan that should be put into place. Although the decision to protect your home through a transfer to an irrevocable trust makes great economic sense, it is often a very difficult emotional decision. Our goal in preparing a comprehensive Elder Law Plan is to both assist with the asset protection and also to make you or your loved one feel comfortable making the decision.
One concern we address in particular is the fear of being forced from the home after the house is transferred to the Medicaid Asset Protection Trust. There are a number of planning considerations that assist in allaying this fear. However, on aspect of the house transfer process that must be included to increase the feeling of security is the signing of a long term lease. Yes, the person transferring the property to the trust will become the tenant. The newly created trust into which the house was transferred, through its trustee(s), will be the landlord. It might sound funny to think that parent will become a tenant in his/her/their own home while child as trustee becomes landlord. Despite the initial strangeness, it is an important detail that should not be overlooked.
The lease is a legally binding contract entered into by the Trustee and the parent who has transferred the property to trust. As such, the lease should be structured as an arms length transaction. There should be a lease term, rental payment and other typical contractual obligations. Take a look at our earlier post entitled Your Child Is Your Landlord, Pay Them! for a review of the lease terms and benefits.
By becoming a tenant, the parent is given all of the rights under the Landlord Tenant Act. They therefore cannot be summarily removed from the property so long as the lease is in full force. The lease terms are typically slanted to the tenant’s (parent’s) favor. Even though the parent has every belief that the newly appointed trustee will protect their interest in living in the just transferred home, the lease provides a legal protection they would not otherwise have. You have heard the stories and I have experienced them through my work. Although not the normal end result, there have been cases of a son or daughter removing a parent from the home after the gift of a home has occurred. It is even less likely for this to happen when a property is transferred to the Irrevocable Trust, but we want to be safe and we want the person making the gift to be safe and confident in their decision.
Beyond the comfort level the lease may provide, there are economic benefits as well. The newly formed Asset Protection Trust will be responsible for the upkeep, maintenance and taxes for the property because it is the owner. Therefore, the rent paid to the trust will be used to pay for these costs associated with the property. We also further reduce the parent’s assets that would otherwise be available for nursing home spending. We get all of these benefits without any Medicaid ineligibility because the rent payment is not a considered a gift.
Although we are just scratching the surface of some of these issues, you can see that there are any number of nuances to Elder Law Planning generally and home transfers specifically. Any one of these planning considerations could serve to protect thousands, tens of thousands or hundred of thousands of dollars. Schedule a consultation with Elder Law Attorney, Douglas L. Kaune of Unruh, Turner, Burke & Frees, P.C. to review your Pennsylvania related Elder Law and Medicaid asset protection concerns. Call 610 933 8069 now find a convenient meeting time.
