Family dynamics are unique to each family unit. Particularly in the last few years, family members are living together more often and adult children are staying or returning home more frequently. Additionally, more and more people are choosing home health care options over long-term nursing home care during their elderly years, sometimes employing a family member as their caretaker. Determining the effects of these choices on your estate plan is vital to preserving family harmony after your death.
The first issue to consider is whether there are any parties outside your family who have a claim to your house. If you receive Medi-Cal benefits , the state will attempt to collect from your estate. At that time, the house will no longer be an exempt asset for Medi-Cal purposes. Medi-Cal recovery may be avoided through the use of a QMap Trust. Other creditor claims may have a priority over your family members as well. Complete consideration of your liabilities as well as your assets may help determine whether your other distribution goals can be met.
If a family member is living in your home after your death, there are a number of issues that could arise. You, as the estate planner, must determine your plan with respect to your real property, since it is not a readily divisible asset. If you intend for the property to be inherited equally by multiple beneficiaries, it is important to communicate to the family member living in the home that the home will likely be sold in order for other beneficiaries to inherit their share.
Alternatively, if you intend for the beneficiary living in the home to inherit the property, you may simply give it to that person. You may specify offsetting distributions if your estate is large enough or certain life insurance arrangements may allow the person remaining in the home to buy the other beneficiaries’ shares. In these instances, it is important to communicate with other beneficiaries about any unequal distributions that result from granting one person the home. Otherwise, the gesture could be construed as favoritism.
There are other options that allow you to split the difference between granting the property to one person or allowing it to be sold. For example, the home may be designated for a life estate only for the beneficiary who lives in the home, which would allow them to live there during their own life. Another alternative is to plan for the person in the home to pay rent to the other beneficiaries. Specifying whether or not rent is owed saves your trustee or executor from having to ask the person in the home to pay rent or from breaching their fiduciary duty as a result of the failure to collect rent.
If all beneficiaries are aware of the circumstances related to the home in advance, it is not as much of a blow to learn about it later. No one needs to feel as though they are suddenly being put on the streets as a result!
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