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Real Estate Agent Q&A: The Legal Scoop on Transferring Assets

28 Sep, 2021

There are many times real estate agents have questions related to a challenge their client is facing. At Velocity Title, we work hard to help our agents navigate even the most complex scenarios. Our “Real Estate Agent Q&A Series” is a way to answer some of these questions, and offer advice to help move your clients forward. Our next topic in the series addresses transferring assets in real estate and limiting taxation ramifications.

Real Estate Agent Question:

My elderly clients need to do some estate planning and want to transfer title to their home to their kids, but they really want to remain living in the home for the foreseeable future. What do I advise them?

Answer to Real Estate Agent:

Clients seeking advice on transferring assets to their kids are becoming more frequent in my practice. More older individuals are looking to protect their hard-earned assets and transfer them to their families while limiting taxation ramifications. For many reasons however, I do not suggest simply adding kids to the title of your home. (It is presumed for this example we are referring to adult kids). Some reasons to not simply add kids to title include:

If the parents are married and share title as Tenants by the Entirety (ownership by husband and wife or domestic partners as defined under statute) transferring to the kids will result in severing the Tenant by the Entirety protections as to a portion of the property.

  • If one of the children is sued, or suffers some other type of liability judgment, those issues from the child’s problems can result in attachment to that child’s interest in the home.
  • Adding children to title gives them ownership in the home and this locks up the home so the parents would need the children’s permission and agreement to refinance the home—or sell or lease the home.

So, what can this real estate agent’s clients do to ensure their assets are being transferred accordingly? Contrary to simply adding a child to title, creating a Life Estate Deed in the home can accomplish the goal of having the kids get the home should the parents pass away—without having to go through probate nor with any immediate estate tax implications. Creating a life estate in the home is a relatively simple process and is usually inexpensive. A parent can execute a new deed to themselves in the form of a Life Estate Deed retaining all powers to sell, lease, mortgage, hypothecate or otherwise transfer or encumber the home without the need of the kid’s agreement. In creating the Life Estate Deed, the parents would name the kids in the deed as “remaindermen.” In doing so, upon the death of the last surviving parent, the home automatically transfers to the named kids without the need of probate or execution of a new deed. By retaining powers in the life estate, the parents are able to do anything they wish with the home during their lifetime and it does not trigger a transfer for IRS taxation purposes. (Gift or Estate Taxation, if any, would be determined based upon the value of the transfer to the heirs at the time of transfer and an accountant, tax or estate attorney should be consulted).

In some rare instances it may be that the parties should, or want to, create a Life Estate Deed without powers. In those cases, once the deed is signed it triggers a transfer to the remaindermen for IRS taxation purposes and the parents are no longer able to control the disposition of the home without the agreement of the remaindermen. One thing to keep in mind in deciding which type of Life Estate Deed to execute for estate planning purposes is that Medicaid has a five year look back on transfers of property to heirs. This means there be a consideration based upon the individual facts of each person(s) situation. For calculating the five-year look back period, it starts immediate upon execution of a Life Estate Deed without powers. It is not triggered for Life Estate Deeds where the parent’s retained powers. For the vast majority of people however, the life estate deed, whether with or without powers, is a valuable and easy tool to reach their estate planning goals.

A note from the author, Velocity Title’s Co-Founder, G.Russell Donaldson, Esq.

 Life Estate Deeds transfer legal interests in real estate which may have tax implications to the Grantee. Persons should seek competent legal advice before engaging in such a transaction.

Keeping You and Your Clients Moving Forward

Velocity Title has the legal expertise to guide real estate professionals, buyers and sellers through the tough, and sometimes complex, legal issues relating to real estate transactions. After all, for most people this is the single biggest investment they make in a lifetime—so nothing should be left to chance. The Velocity Title team has combined experience of more than 190 years of real estate title work. Let our team guide you and your clients through even the most complex transactions. To learn more, click here or contact us today.

To check out other topics in our Real Estate Agent Q&A Series, clear here.

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