How home ownership affects estate planning

Real estate is precious, unique and poses important planning issues. First, there are different forms of ownership, and they need to be considered carefully when planning your estate.

Some of the different forms of joint ownership in South Carolina are (1) joint tenants with right of survivorship (JTWROS), (2) tenants in common with indestructible right of survivorship (TCROS) and (3) tenants in common.

With the first two forms, probate is avoided, but with TCROS, the home is also protected from lawsuits while the joint owners are living.

TCROS is usually preferable for married couples who want their home protected from lawsuits while both are living and who want the survivor to become the owner automatically, outside of probate, when the first spouse dies.

If you are single and want to avoid probate, owning a home in a revocable trust will avoid probate. You can still get the favorable 4% tax rate.

If you want your children to inherit the home so they do not lose it in a divorce and it stays in your family, you should have your trust direct that the children receive their shares pursuant to the terms of trusts they can control for their own benefit.

You can direct that the home stay in your family, passing to your grandchildren when your children die. You can further direct that if a grandchild inherits when younger than 25 or 30, the grandchild’s share will be held in trust for education and other needs. The trustee can be the biological parent, an in-law or another one of your children.

Second, if your home is paid off and you do not have long-term care insurance, you may need Medicaid.

If your home is paid off, you can take steps now to make sure that if you ever go on Medicaid, the state will not be able to get your house if it seeks estate recovery.

How?

The strategy is to keep the full legal right to use and enjoy your home during your lifetime or joint lifetimes (for husbands and wives). At the same time, you give away the rest, or future interest, to your children or to trusts for your children.

If this is done sufficiently in advance (five years), the state will not be able to recover your home, and the home will not be lost to estate recovery if you ever go on Medicaid.

Why? Because you gave your children, or a trust for their benefit, the future interest, and the state can no longer recover that interest when you die. It goes to your children.

Example of an issue with real estate

A perfectly good plan can be derailed if real estate is not owned properly.

For example, assume Jack’s will says all his assets are to be given to his children, Florence and Liz, in equal shares.

However, Jack’s home is owned by Jack and Liz as joint tenants with right of survivorship. Florence is not on the title.

When Jack dies, who gets his real estate?

Liz gets it.

Florence was disinherited, as to the real estate, by mistake. The property avoided probate, but a child was mistakenly disinherited.

Also, if Liz were sued while Jack is living, her half ownership in the house would be subject to claims by her creditors or someone suing her. That is not good.

If someone owns real estate, even a timeshare, in another state, that person should consider creating a revocable trust to own the property so it avoids costly probate proceedings in that state.

As always, a little advance planning can avoid many problems.

Mark F. Winn, J.D., Master of Laws (LL.M.) in estate planning, is a local asset protection, estate and elder law planning attorney. mwinnesq.com.