To Deed or Not To Deed

For the last 15 years or so, adding the names of children to the deed to a parents' home has become commonplace. But, the fundamental question is whether this is a good idea legally. There is usually one reason that our clients want to deed their home to their children—they are afraid of nursing home costs and want to protect a valuable asset from being "taken" to pay for nursing home care. I don't blame anyone who has a healthy fear of nursing home costs. Depending upon the level of care needed, a nursing home will cost $6,000-$9,000 per month in the state of Wisconsin. OUCH! That's expensive and certainly creates some fear. To alleviate fear, a common suggestion from friends and many lawyers is to deed your real estate to your children to start the Medicaid five-year look-back period, but is this wise? We want to start the five-year look-back period, but should we really deed the house to the children?

Unfortunately, simply deeding your home or other real estate to your children is not a panacea. Yes, it will start the Medicaid five-year look-back clock ticking, but deeding property to your children comes with risk. Once the deed is done, your child or children now own a legal interest in your real estate. Often, you no longer own the real estate or you retain a life estate interest. The risk is your child's unknown financial future. If your child encounters debt issues, divorces, gets sued for money, or files bankruptcy, your home is placed in jeopardy. I recently assisted a client with the misery of paying a bankruptcy trustee a large sum of money to buy-back her daughter's interest in my client's home because her daughter's name was on the deed. This can be a nightmare!

What's the solution? People need lawyers who are creative thinkers. The solution is for a client to create an irrevocable trust to own the legal interest in your real estate that the client wants to give away. The client's children are the beneficiaries of the trust and the trust continues to exist until the client's death. If needed, the client may also continue to own a life estate (client keeps lifetime control) with the trust owning what is called a remainder interest in the real estate. Don't simply deed real estate to your children. You need greater protection. You need a properly drafted trust.

By: Michael W. Vogel