1. Joint Ownership: Placing the name of another person or persons on an asset declaring it to be held “jointly” with a right of survivorship permits automatic ownership in that person or persons when the owner dies, ie a bank account, a stock certificate, an automobile title.

2. Named Beneficiary On an asset: Placing the name of a person or persons as specific beneficiaries on a life insurance policy or on a retirement plan or on other investment assets such as an annuity automatically transfers ownership to that person or persons when the owner dies.

LIFETIME TRANSFERS OF OWNERSHIP OF REAL ESTATE (THE FAMILY HOUSE) OR OTHER ASSETS:

When parents think of transferring their house to a child or children, first they need to consider if its generally a good idea in the scheme of things or if there are other factors that outweigh such a decision.

A. Creditors: If a child becomes an owner of his or her parents house, it becomes become known to the child’s consumer creditors and in the worst case could result in litigation whereby the creditor could attach the property and establish a lien of ownership. If the parents, at the time of transfer to the child by deed reserve a life estate, the house would be protected from seizure during the occupation by the parents, but not after that.

B. Divorce: If the child becomes divorced after having been given the deed to the house by his or her parents, the house value would be counted as that child’s asset in the calculation of the division of martial assets and the child could receive less in the property division and settlement of the divorce action. So, parents need to be aware of this prospect when making the house a gift to a child.

C. Common Planning: Once the house is transferred to a child or children and if the parents have made the decision to sell the house and to move then it is incumbent that any children whose name appears on the deed agree to the move and participate in the signing of the deed releasing their ownership interest. A sale of the house after transfer of the asset during the life of either parent could have significant income tax consequences and any sale should be preceded by professional tax advice.

TRANSFERRING PROPERTY, EITHER REAL ESTATE OR PERSONAL PROPERTY SUCH AS INVESTMENTS INTO A TRUSTS

A. THE REVOCABLE FAMILY LIVING TRUST:

This form of a trust is used to avoid probate. The maker or the grantor of the trust maintains control, not as an individual, but rather as a trustee. In that capacity, he or she can manage and control the trust just as he or she could as an individual.

However, the big advantage occurs when that person dies in that a successor trustee is appointed almost immediately to settle the affairs of the trust.

There is no probate of the estate through the probate court; there is no time delay or waiting time until the assets of the trust are able to be accessed. The access, rather, is almost instantly.

The trust document itself provides the structure to the operation of the trustee.

There is a need to re-title the assets held by the individual owner(s) into the names of the trustees. This is done by changing the ownership on bank accounts, investments and on the deed to real estate. The process is quite simple.

The trust has its own federal identification number just like a person with a social security number.

The advantage of having a trust is that when the grantor dies, the trust does not die, it lives on and the terms of the trust direct where the property goes and to whom it goes on terms set up by the grantor while alive.

B. THE IRREVOCABLE INCOME ONLY TRUST:

This form of the trust is a little more specialized. It is used primarily to shelter assets from both claims for payment for nursing home care and to remove assets from an individuals name to either minimize or avoid estate or death taxes.

When someone transfers assets into an irrevocable trust, the asset, for all practical purposes is removed from the person’s estate for their lifetime except for interest or earnings that the trust assets may generate from investments. Its an “income only” form of trust for the maker.

Contact us to learn more about this unique form of asset holding if you have concerns about nursing homes or estate taxes.