With the changes in medical assistance and increase in the number of persons entering a nursing home, the usage of life estate deeds has become quite popular. There are important factors to consider when changing or adding names to your deed. Creating a life estate deed gives the owner(s) of the property the opportunity to add someone to their deed while avoiding capital gains taxes. In viewing this type of deed, there are two options: the life estate deed with powers and the life estate deed without powers. Under the Life Estate Deed with Powers, the owner of the property keeps the property in their own name and specifically states in the deed that at their passing, the property would go to the named beneficiaries. At the time of death, the inheritance taxes, if applicable, would be applied and the property would then be turned directly over to the heirs. This deed does not protect the property from Medical Assistance since the deed can be revised at any time. Under the Life Estate Deed without Powers, the owner of the property adds the beneficiaries to the deed but cannot sell the property without the approval of those named beneficiaries and the appropriate inheritance taxes are applied. This type of deed does protect the property from Medical Assistance if the deed was completed 5 years prior to the person requesting Medical Assistance. Another option is that an owner may add a person or persons to the deed as a Joint Tenant or Tenant in Common. If this is done, the person(s) being added assume(s) the same tax basis as the original owner. Therefore, when the person who owns the property passes away, the appropriate inheritance taxes are applied as well as any capital gains taxes, which at the current rate will be up to 20%. It is important to consult an attorney who is familiar with these types of deeds in order to make an appropriate choice.
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