Real estate encompasses not only one’s primary residence but also other real property such as a vacation home or a rental house. The ideal form of ownership varies depending on the type of real estate you own. Below, we take a look at the different types of real estate and offer advice about the recommended form of ownership for each.
Because your primary residence receives special tax treatment, you should carefully consider how your home is owned. In some states, tenancy by the entirety offers married couples creditor protection from the creditors of one of the spouses (with a possible exception for federal tax liens) while still preserving relevant tax benefits. It also allows automatic transfer of ownership to the surviving spouse upon the death of the first spouse without court involvement. Transferring ownership of the primary residence to a joint revocable trust may also be an option if you live in a state that allows the tenancy of the entirety protection to transfer to the joint revocable trust. Ownership by the trust also means that the real estate will not go through a lengthy, expensive, and public probate process but will instead be handled according to your wishes as specified in the trust document.
If you are single, owning the property in your name allows you to take advantage of tax benefits for primary residences. Transferring ownership to a revocable living trust may also allow you to retain the applicable tax benefits with the added advantage of avoiding the probate process. If asset protection is a major concern during your lifetime, certain types of irrevocable trusts are best suited for your needs but may require you to give up control of the property.
Estate planning—it is an incredibly important tool, not just for the wealthy or those thinking about retirement. On the contrary, estate planning is something every adult should do. It can help you accomplish any number of goals, including appointing guardians for minor children, choosing healthcare agents to make decisions for you should you become ill, minimizing taxes so you can pass more wealth onto your family members, and stating how and to whom you would like to pass your estate to when you die.
While it should be at the top of everyone’s to-do list, it can be an overwhelming topic to dive into. To help you get started, below are some important terms you should know as you think about your own estate plan.
Assets: Generally, anything a person owns, including a home and other real estate, bank accounts, life insurance, investments, furniture, jewelry, art, clothing, and collectibles.
Beneficiary: A person or entity (such as a charity) that receives a beneficial interest in something, such as an estate, trust, account, or insurance policy.
Distribution: A payment in cash or asset(s) to the beneficiary, individual, or entity who is entitled to receive it.
Estate: All assets and debts left by an individual at death.
Fiduciary: A person with a legal obligation (duty) to act primarily for another person’s benefit, e.g., a trustee or agent under a power of attorney. “Fiduciary” implies great confidence and trust, and a high degree of good faith.
We all have reasons for procrastinating when it comes to estate planning. However, before you put this important life decision back on the shelf again, you might want to know a few of the things that can happen to your money and possessions upon your death if you haven’t planned. These Kansas probate rules may encourage you to move just a little quicker to finish or update your estate planning.
Did you know?
These are just a few of the Kansas probate laws that control what happens to your money and property after your death. If you have questions about probate or estate planning matters, contact Davis & McCann, P.A., Dodge City, Kansas at 620-225-1674. We are members of Wealth Counsel, a national consortium of Estate Planning Attorneys and the National Academy of Elder Law Attorneys (NAELA). We focus our practice on providing clients with the best legal advice on Estate Planning, Medicaid and Long-term Care Planning, Special Needs Planning, Family Business/Small Business Succession Planning, Probate, Trust Administration, Real Estate, 1031 Exchanges, and related matters.
Q: My husband and I have amassed a nice bit of real estate during our marriage. We have been looking at doing an estate plan, but we aren’t sure how to address an issue we have with our son. Our eldest son is in a rocky marriage and none of us are convinced that the marriage will last, although he and his wife have been together for more than 10 years. My husband absolutely does not want our daughter-in-law to inherit any of our property if their marriage does last and our son dies before she does. Is there anything we can do to ensure that our son receives his inheritance, but upon his death, his remaining share would be redirected to our other children? Our other adult children are in stable, long-term marriages. If this was your family, what would you do?
A: You might be surprised to know that this is a fairly common dilemma for families, and it shouldn’t stop you from moving forward with estate planning. Given your situation, you would be a good candidate for a living trust. In a living trust you can easily stipulate that your son’s inheritance be held in an asset protection trust for his lifetime and upon his death, distributed outright or in trust to your other children. You can name a trusted individual to act as trustee over your son’s trust to ensure that distributions to your son are done prudently and in keeping with your wishes.
You may even want to consider putting ALL of your children’s shares into asset protection trusts. Your son may mend his relationship and one of your other children may have an unexpected divorce, bankruptcy or end up in a legal battle with a creditor due to an accident. Without the trust, your child’s inherited share would be vulnerable to their creditors. Additionally, if any of your children were to become disabled, either mentally or physically, and require government benefits, that child’s inherited share, if required to be held in a special needs trust, would be available to your child without preventing them from receiving their benefits.
If you do make the decision to have your children’s inheritance held in trust for them, you may want to talk with them to explain why their inheritance will be administered in this way and the benefits to them. This extra step of transparency can help alleviate possible friction that may arise if your children are under the impression that they will inherit their share outright.
If you have questions about type of estate plan, contact Davis & McCann, P.A., Dodge City, Kansas at 620-225-1674. We are members of Wealth Counsel, a national consortium of Estate Planning Attorneys and the National Academy of Elder Law Attorneys (NAELA). We focus our practice on providing clients with the best legal advice on Estate Planning, Medicaid and Long-term Care Planning, Special Needs Planning, Family Business/Small Business Succession Planning, Probate, Trust Administration, Real Estate, 1031 Exchanges, and related matters.
Don, age 82, and his wife were married for 45 years before she died. Don had no children but was very close with his extended family. After his wife died, Don revised his estate planning to name his sisters, Rita, age 72, and Catherine, age 78, as the sole beneficiaries of his estate. Rita was never married had no children and Catherine and her husband had 3 children. Don was especially concerned about how Rita might be cared for in her later years as she had no family of her own. He was relieved knowing that she would receive one-half of his approximately $200,000 estate when he died. It gave him peace knowing that she would be able to live a more comfortable life using this inheritance, perhaps going on several nice trips or enjoying a few luxuries.
While this sounded like a wonderful plan, Don didn’t anticipate that Rita’s health would decline rapidly and she would need full-time nursing home care a short time later. Rita qualified to receive Medicaid benefits after only a few short months and she was well cared for in the local nursing home. Don died two (2) years later and his estate was divided between his sisters just as he had instructed. Unfortunately, what Don didn’t understand was that Rita’s share of the inheritance automatically disqualified her from receiving her Medicaid benefits and she was forced to use her inherited money to pay for her nursing home care, instead of using it to make her life more comfortable. Within less than two (2) years, Rita’s inheritance was gone and she had nothing to show for it. Her level of care at the nursing home did not change and she was unable to use the money for any of the things that her brother wanted.
No one can predict the future but if Don had understood that Rita’s inheritance would only be used to pay her nursing home expenses previously being paid by Medicaid, he most likely would have made a different estate planning decision. If Don had revised his estate plan once Rita entered the nursing home to include a Special Needs Trust (SNT) a/k/a Supplemental Needs Trust, for Rita’s benefit, her share of the inheritance could have been held in trust to provide her with the extras that her brother had intended. The Trustee of the SNT would have been able to provide Rita with the things that she wanted or needed to make her life more comfortable, without the trust share disqualifying Rita from receiving Medicaid benefits.
This scenario illustrates why it is so important to review your estate planning regularly with your attorney, at least every 3-5 years. Be sure to inform your attorney if one of your intended beneficiaries is receiving government benefits or may be a recipient in the foreseeable future. By adding language to your estate plan that creates a SNT upon your death, your loved one can be guaranteed to receive their inheritance without disqualification from government benefits.
If you have questions about of special needs planning or any type of estate plan, contact Davis & McCann, P.A., Dodge City, Kansas at 620-225-1674. We are members of Wealth Counsel, a national consortium of Estate Planning Attorneys and the National Academy of Elder Law Attorneys (NAELA). We focus our practice on providing clients with the best legal advice on Estate Planning, Medicaid and Long-term Care Planning, Special Needs Planning, Family Business/Small Business Succession Planning, Probate, Trust Administration, Real Estate, 1031 Exchanges, and related matters.
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