Lifetime Right Deed

Lifetime Right Deed
question

My mother is in a nursing home she deeded her home to me with lifetime rights I would like to sell her home because of ongoing expenses an upkeep to the property what percentage if any will be given to her from the sale.

answer

We'll try to give you some guidance, but the terminology is not precise so there are a number of points that are not clear for which you really will need professional advice.

"My mother is in a nursing home" - before you do anything consult with an elder law specialist (that is not a general estate planner, but someone that understands elder law, Medicaid and related issues) in your state. You need to understand if there are any medicaid implications. It might be possible that depending on the facts involved there may be an advantage to keeping the home rather than selling it and converting it to cash.

"She deeded her home to me with lifetime rights." It sounds as if your mother may have entered into a common Medicaid/elder law planning transaction of deeding the ownership of her home to you, while she retained what is referred to as a life estate in the home. A life estate generally gives her, your mother, the right to live in the home for life and on her death you own it. For Medicaid purposes, her interest in a life estate may not have been an asset that could be reached. But the laws in this area have changed (5 year look back, etc.). It is not clear when the life estate was created relative to the effective date of the new legislation. Further, there is no "standard" language used to create a life estate so that the language the lawyer who drafted the deed (or other instrument, or legal agreement) creating the life estate really needs to be evaluated. Finally, there are differences from state to state. So what you need to do is have an elder law attorney review the actual deed, your family's circumstances, your state's laws, and advise you what to do.

You should also be aware that if there is an estate tax that could apply, your mother's having retained a life estate will cause the house to be included in her estate. That could create or add to an estate tax depending on the value of the house and her overall estate. If there her estate is not taxable, the fact that a life estate will cause the house to be included in her estate (with no estate tax cost if her estate is not taxable). But that inclusion will give you an increase in the tax basis (cost she paid to buy the home, plus improvements, less depreciation). This is because assets included in someone's estate when they die have their tax basis stepped up (increased) to the fair market value at death. There is another twist to consider as well. If the home qualifies as a principal residence for your mother (not clear without some additional research but your accountant can help you on this). Also, depending on the facts you would need to also make sure that your mother's absence won't disqualify the home as a principal residence.

"I would like to sell her home..." You really should consider Medicaid, income tax, estate tax (if applicable), state estate and/or inheritance tax (if applicable), and other issues. Converting the house to cash by selling it may have significant differences then holding it. However, because of the many issues noted above, depending on how they "play out" some of these may not be a factor. But it is always better to be "safe then sorry".

"...because of ongoing expenses an upkeep to the property..." Understood. This is a common problem retaining homes. However, you need to consider what the recent market declines have done. Perhaps you would be better off renting the home on a temporary basis until the market recovers. Perhaps the market is so bad in your area that it is not saleable at a reasonable price now. You probably can get a good local real estate broker in to review all of these issues to get some better insight. That is worth doing before you speak with an attorney and elder law specialist.

"... what percentage if any will be given to her from the sale." If you go through and resolve all the issues and points above (and any other points the professionals you hire recommend you consider) and the result is that a sale is warranted, it will likely be that your mother should be entitled to receive the actuarial value of her interest in the house. This would be determined from actuarial tables. An accountant or financial planner can help you with the calculations (many people use IRS tables provided for this purpose). However, before making a final determination the lawyer reviewing the deed and other issues should be asked if there are any other factors to consider in making the calculation.

If you want to sell the house, do you have the legal authority to do so? You can want all you want (I wanted to be 6'2" but ended up 5'5"!), but you need the legal authority. Did your mom sign a durable power of attorney naming you agent? If so, does that legal document give you authority to sell the house (don't assume yes, while many powers of attorney do provide that right, not all do). If your mother is incompetent now, the power of attorney has to be "durable" (i.e., valid after she becomes disabled) or it may be of no use. So you'll need to have a real estate attorney or estate planner review this issue.

Finally, even if there is a power of attorney are you the only agent? Are you the only heir (child or otherwise)? What does your mother's will say? Will other heirs have a beef (even if they are vegetarian) about what you are doing? Even if you are the sole agent and have the authority to sell do you have a kid brother who would be livid over your selling mom's home? The interpersonal aspects of all this need to be thought out as well. What does your mother's will say about the house and the division of her estate. Often, if the language in the will is not clear or precise, or even if it is the actions of an agent under a durable power of attorney (e.g. your selling the house) can affect the final distributions under the will. While this may not, you want to think it all through. If there is an impact, discussing it with your siblings or other affected heirs in advance might be enough to avoid a fight at a later date.

Sorry this is all so complicated and that there are so many recommendations to get additional guidance. It may turn out that the answer is relatively simple and many of the issues raised won't apply to you. However, it might not. So, its better to go through all the issues and resolve them before you opt to sell her house. As is so common with seemingly simple legal issues (selling your mom's home because costs are too great) can have a myriad of complex and interconnected legal, income tax, estate tax, real estate, Medicaid, personal, and other issues.

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