Keeping Family Real Estate in the Family

In challenging economic times, many families find out too late that the family home has been "lost" through poor financial planning. There are options that can preserve that investment for the next generation. However, many of those options require planning ahead.

Simply deeding the home to another family member can have serious tax consequences, as well as a loss of control for the parent. Furthermore, if the parent requires Medicaid assistance within a given time period (commonly a minimum of five years after the transfer), the family may still be required by the state to sell the home for medical expenses. Or the family member entrusted with title to the home may mortgage it, sell it, or even lose it in a bitter divorce. 

One common solution is to deed the home to a living trust. This may also be subject to a "looking back" period in the event of Medicaid issues, but proper planning and record-keeping combined with detailed records of family assistance to keep the elderly parent in the home as long as possible can avoid that problem. Furthermore, the living trust allows the parent to retain control as trustee as long as he wishes. Discuss these options with a qualified estate planning attorney. 

Reverse mortgages and deferred property taxes may improve cash flow for the elderly parent, but can also lead to a big problem at the parent's death. For example, the state of Florida allows some elderly homeowners to defer property taxes. But all those deferred taxes become due upon the homeowner's death. Likewise, reverse mortgages pay out equity in the home. If the money can't be repaid, the home may need to be sold. 

Another source of problems can be medical bills. Aggressive collectors may suggest tapping into home equity to pay outstanding medical debts, placing the home at risk when the homeowner can't afford to repay the loan. 

Finally, many elderly homeowners have been scammed by itinerant home "repair" contractors. Typically, these scam artists target elderly consumers, point out the need for "emergency" repairs, and offer "easy financing" for bargain priced "repairs". The fine print in the "easy financing" paperwork adds additional fees and charges far above the value of any repairs, and often leads to foreclosure for the victim.

It's not always easy for families to discuss financial planning issues. Elderly parents may be reluctant to admit financial problems, and adult children may be reluctant to suggest financial planning for fear of being seen as greedy. But discussing these matters now can save thousands of dollars in the end. It may even save the family home.