“How does a Home Legacy Trust protect my home from creditors and predators?”

Protect your home!

Protect your home!

For most of us, the most valuable asset we have is our home.  I’m talking about when we own it without owing any money on it.  And when we think about losing our assets to the cost of long term care or to a lawsuit, the one we most want to protect is our home.

It is, after all, where we live.  And if often has sentimental value to our children and we want to be able to pass it to them in a way that they can enjoy it.  Or even if they sell it, we want to protect them from paying unnecessary taxes.

In this article we’ll talk about how the Home Legacy Trust can be a wonderful solution to these problems and concerns.

“What is a Home Legacy Trust and how does it protect my home?”

This is a unique type of “irrevocable trust” that Alabama Elder Lawyers Sabrina Comer and John Watts have developed where you put only one thing into — your home.  Here’s what the Home Legacy Trust will do:

  • Allow you to remain in your home as long as you decide you want to remain
  • Protect your home from creditors and predators
  • If you need nursing home care, your home will be protected from the cost of care assuming you have activated the Medicaid Peace of Mind Strategy with our office
  • Your children, or whoever you desire, will obtain ownership of your home when you pass away
  • Whoever you want to have your house will get the “step up in basis” which means they will normally save tens of thousands of dollars in taxes when they sell your home

“What is an irrevocable trust?”

A Trust is like a treasure chest

A Trust is like a treasure chest

Here’s what a trust is — it is simply a “box” (or treasure chest) that holds whatever we put in there.  We can put stocks, mutual funds, cds, property, and even our house in the box.

We put things in the box so they are no longer in our name — instead the trust (box) owns the assets.

This can give protection to the assets but still give us the right amount of control and access.

An “ir-revocable” trust is one where once we put the asset in the box, we can’t take it out for our own benefit anymore.  We no longer “own” it which is important because the basic idea of “asset protection” is if we can’t get to the asset, then neither can our creditors and predators (see below).

Now we can still live in our home.  And still have full use of it.  But we can’t sell it and take the money for ourselves.  The trust can sell it (with your permission) and then buy a new home for you to live in.

This gives you great protection from nursing home costs, lawsuits, creditors, and other threats to this asset that is most precious to you — your own home.

“What is the danger if I don’t do anything with my home?”

If a creditor, or predator, is able to get to your home, they can take it from you.

Let’s look at lawsuits first.  Let’s say a creditor is owed money and that creditor sues you.  And it gets a judgment against you where you don’t have enough money to pay the judgment.

The creditor with a judgment can do what is called a “sheriff’s sale” where your home, that you own free and clear, is sold to the highest bidder.  The highest bidder usually pays a fraction of what your home is worth.  It is hard to understand but this is worse than a foreclosure because at least at a foreclosure you will have your mortgage company there to bid what you owe or at least close to it.

But in a sheriff’s sale your $250,000 home may be sold for $75,000.

You get a small amount (called your “exemption”) and then the rest goes to your creditor who has the judgment.

“But I don’t owe any one and won’t owe anyone any money so I don’t have anything to worry about, right?”

Well, if you drive a car there is a chance you could be negligent (or at least be accused) and hurt someone who then sues you.

In years past, there was a “code of honor” among lawyers who filed personal injury cases not to go after someone’s personal assets.  Especially their home.  Instead the lawyers would only pursue your liability insurance amount and nothing above that.

Those days are dead.

Now if you hurt someone the lawyer will go after everything you own.  A nice house that is paid for is a wonderful target for someone looking to cash in after seeing commercials about getting “their check.”  Because to take your assets, they have to be found and sold.

Pretty easy to look up in the probate court and see what you own as far as real estate.  And everyone knows real estate can be sold “for the right price” so it is not difficult for the lawyer to see how to convert your house to money in order to pay damages and attorney fees.

So the threat of a lawsuit is real even if you don’t owe anyone any money.

What about “predators” — what are they anyway?

We’ll do a more in-depth article soon but here is a short list:

  • Elder financial abuse (taking advantage of the elderly)
  • Divorce (if you get remarried what happens if your new spouse divorces you?)
  • Nursing home care (how will you pay for nursing homes at $6,000 or more a month)
  • Medicaid (if you are single when you go into a nursing home Medicaid will put a lien on your home after you die and you normally can’t transfer the home while on Medicaid)

If the home is in your name then all of these (and more) predators can threaten your home.  Either to take it now or to make sure that your children don’t get your home after you die.  We have had sad conversations with kids who “just knew” they were getting mom’s house but found out after mom died that the Medicaid lien was more than the house was worth.  They tell us “But mom always told me I would get the house and that’s why she left the money to my sister.”

Medicaid doesn’t care about that and neither do lawsuits or other predators.

“Why don’t I just give away my home to my kids like my real estate lawyer tells me to do?”

We have financial professionals and even lawyers who say this to us — “Yes, we need to get the house out of Susan’s name so we’ll have her give it away to her son.”

Seems like a good idea, right?

Cheap?  Absolutely.  Few hundred dollars to do the deed in probate court.

Or is it cheap?

Now all of the risks described above are still present — only now they are focused on your child who gets the house.

So if your child is sued by creditors, the house may be lost to your child.

If your child runs a red light, the house may be gone in a lawsuit.

What if your son in law divorces your daughter — will he get the house?  Will the house be sold and the money divided between your daughter (who you want to have the house/money) and your now ex son in law?  I suspect not what you intended!

There is no protection for the house — it is still exposed only now it is exposed to the risks of your child (and the spouse of your child) instead of your risks.

Oh, and when your child sells the home, they normally will be crushed with un-necessary taxes.  For example, if you bought your house in 1980 for $75,000 and now in 2014 it is worth $250,000, then when you give it to your child in 2014, the “tax basis” is $75,000.

So they sell it in a few years for the $250,000.

They have a “gain” that they are taxed on in the amount of $175,000 ($250,000  minus the tax basis of $75,000).  Not exactly the “gift” the real estate lawyer had in mind when you “gave” the house to your child.

So the cost in terms of taxes and risk of creditors/predators is usually much more than the single benefit of being “cheap” to transfer the house to your child.

“I’m afraid if I put my home in a Home Legacy Trust that I will be kicked out of it.”

This is understandable but this is not anything to be concerned about because the Home Legacy Trust is created in a way that you can stay in your home as long as you want.  No one can kick you out.

You decide how long you want to stay in your home.

“Will my children be able to sell my home after I pass away or do they have to keep the home even if they don’t want to live there?”

They can do either one.  Sometimes children, or a particular child, want to remain in the home or move into it.  Often they want to sell it because they have their own homes or they live out of town, etc.

Either way is fine — your child or children will have the choice of what to do when they want to do it after you pass away.

And you can even set it up so if you had to go to a nursing home or assisted living facility, or otherwise leave your home, then the children could either move in or sell the home.  This is your choice when you set up your own Home Legacy Trust.

“When should I use a Home Legacy Trust — while I’m healthy or when I’m sick?”

What’s the old saying?  “The best time to plant a tree is 20 years ago.  The second best time is today.”

True here also.

It is best to use the Home Legacy Trust while you are healthy but it can be used even if your health is declining.

While healthy you can use the Home Legacy Trust to protect your home and if you ever need Alabama Medicaid, there will be no issues once you are more than five years away from transferring your home into your own Home Legacy Trust.

And if your health should suddenly decline, and you need a nursing home before five years, we can implement the Medicaid Peace of Mind Strategy to make sure that you get the care you need and your home is not in jeopardy.

But if your health is failing right now, then as a part of our Medicaid Peace of Mind Strategy we often will use the Home Legacy Trust to protect your home even as we prepare for nursing home costs in the near future.  Every situation is different but we can look at your assets and income and health care costs and prepare a plan that gives you the peace of mind you are looking for:  to get the care you need and to preserve as much of your assets for your spouse or children as the law allows.

“OK, I’m convinced I need to do something to protect my home from creditors and predators.  How much is this going to cost me?”

First, we don’t change the price based upon the value of your home.

Second, each case is different and we will show you the exact cost in your situation and how this compares to the benefit of protecting your home.

“Is the Home Legacy Trust for everyone who owns their home or only the rich or who?”

The Home Legacy Trust is NOT for everyone who owns their home.

Here is who the Home Legacy Trust is NOT for:

  • If you are barely making ends meet and have no money available to protect your home for your children
  • If you don’t care about leaving your home to your children
  • You want to transfer your home to your children in the cheapest possible way now and your family lawyer says he can do that for $250
  • You are not concerned about tax consequences to giving away your home
  • You are confident you will never be sued and never have long term care costs

Here’s who the Home Legacy Trust was designed for:

  • Your home is paid off (or nearly paid off)
  • Your home is important to you
  • Your home represents one of your biggest or most important assets that you want to protect for your children or your spouse
  • You are not going to go without food or medicine by spending money to protect your home
  • You are someone who has the right amount of insurance to protect yourself and your loved ones — homeowners, life, auto, umbrella policy, medical, and hopefully a long term care policy
  • You want your children to “inherit” your home and not face tax consequences when they sell the home after you pass away
  • You realize that life in America means the possibility of being sued (either legitimately or illegitimately) and that long term care costs are the greatest threat to your plan to leave assets to your loved ones

“How do I find out if the Home Legacy Trust is right for me now?”

Give us a call at 205-879-2447 or fill out our contact form here and we will set up an appointment with you.  You will either meet with Sabrina Comer of Comer Elder Law, LLC (based in Montgomery) or with me (John Watts) in Birmingham, Alabama or in Madison/Limestone Counties.  We represent folks all over the state so if these offices are not convenient, we can make this work anywhere in Alabama.

Sabrina and I work together on Home Legacy Trusts and we welcome you contacting us so we can help you discover if this solution is the right one for you.  So call us today at 205-879-2447 or let us know you want to talk by filling out our contact form.

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