How to keep your home in the family

Dear Len & Rosie,

My parents are in their 60's and are thinking about making a revocable trust. They want to leave their house to all three of the children, but they do not want us to sell the home after they both die. Is there a way they can make it so the house can't be sold after their deaths? My mother wants to be sure we always have a place to live if something should ever go wrong with our homes.

Jan

Dear Jan,

Your parents can do this. They can create a revocable trust that would be able to maintain control of their home. Instead of simply distributing their home equally among their children with all of their other assets, your parents’ trust can continue on after their deaths. The trust can include almost any restrictions they want with respect to how their home will be maintained after their deaths.

Your parents can even tie up the property within a dynasty trust for a minimum of 90 years after their deaths. If done right, the property can be held for the children, grandchildren and great-grandchildren. 

But if they do this, there will be complications. First, if their home is held in trust, that means the trust has to pay for the expenses and upkeep of the home. Unless the home is rented out, there will be no trust income available to pay these expenses. That means your parents will have to either leave sufficient assets in the trust to pay the continuing expenses of the home, or make their children pay these expenses.

A second complication is capital gains tax. When your parents pass away, the home will receive a stepped-up cost basis. This means that when the property is eventually sold, the amount of capital gains tax and California income tax due will be based on the increase in the value of the property since the surviving spouse’s date of death. If the home is held in trust until all three children die, it will have undoubtedly increased in value and there will be a significant amount of tax due upon its sale.

Finally, your parents may want to use a little common sense. Sometimes the job of an estate planning attorney is to tell the client, “This is a bad idea.” If all three children are already buying homes, keeping their own home in trust as an emergency backup home is probably a bad idea. It may force the children to become landlords when they may not want to.

Even worse, if one of the children does winds up living in the home, the other two children may never benefit from a large portion of their inheritance. This can create resentment and could even result in your family breaking apart. Unless there’s some overriding reason why this is necessary, it’s usually a better idea to distribute the home outright to the children and let them decide what to do with it. 

Len & Rosie

New budget law incorporates changes to the Medi-Cal estate recovery program

Dear Readers,

 On Monday, June 27, 2016, Governor Jerry Brown signed the new state budget bill for the next fiscal year. The new budget law incorporates changes to the Medi-Cal estate recovery program that will be of significant benefit to the families of Medi-Cal recipients.

If you follow this column, you should already know about Medi-Cal estate recovery. When a Medi-Cal recipient dies, then the California Department of Health Care Services (DHCS) is required to assert a claim against assets owned by a Medi-Cal recipient upon his or her death.  The amount of the estate claim is the amount of money Medi-Cal spends on nursing home residents, at any age, and other Medi-Cal recipients, for benefits paid after they turn age 55. This hasn’t changed.

What has changed is that for Medi-Cal recipients dying on or after January 1, 2017, there will be no estate claim against the estate of the surviving spouse. This means that there will no longer be estate recovery when a married recipient dies and when that recipient’s surviving spouse dies (unless the surviving spouse gets Medi-Cal benefits of his or her own).

In addition, and this is big, DHCS Medi-Cal estate claims will be asserted only on estates subject to probate. Any property held by joint tenancy deed, or held within an ordinary revocable trust, will be exempt from estate claims. This means it will be a lot easier for the families of Medi-Cal recipients to avoid having to reimburse the State of California for benefits paid on behalf of their parents or loved ones.

Since 2002, we have prepared specialized irrevocable trusts for our Medi-Cal clients. While these trusts may no longer be necessary to avoid Medi-Cal estate claims, they are also very useful. For example, if a Medi-Cal recipient sells his or her home, the proceeds of the sale will disqualify that person from continued benefits. However, if the home is sheltered within an irrevocable trust, the home can be sold and the proceeds of sale would be protected. Also, any rental income earned by property sheltered within an irrevocable trust won’t have to be paid to a nursing home as part of a Medi-Cal recipient’s monthly share of cost.

What this new law really does is to provide families with new planning opportunities for long term care to help them avoid the hardship of having to spend the accumulated savings of a lifetime on medical care instead of passing it on to their families. If you or a loved one is on Medi-Cal benefits, or faces the prospect of long term care, you should consult with an elder law attorney experienced in Medi-Cal planning.

Keep in mind, however, that the new law comes into effect on January 1, 2017. Until then, the current rules apply, and Medi-Cal recipients who own homes should definitely look into creating an irrevocable trust.

Len & Rosie