09/05/2024
LEGAL EASE: Legacy planning for your shore house
by Rebecca A. Hobbs, Esquire, CELA
As summer ends and kids return to school, now is the perfect time to consider legacy planning for your shore house. For many families, their shore house is a treasured asset that they want to make sure the next generations can continue to enjoy. There is a lot to consider when deciding what will happen to the vacation property in the event of your demise but there is even more to consider in the event that you would require long-term care.
When considering what would happen to the vacation property upon your death it is important to consider all of the complexities that exist when owning a second property. For example, if the shore house will be left to multiple beneficiaries, how will expenses be handled. How will time at the property be split. What happens if a beneficiary cannot afford their share of the expenses for the house. These are just a few examples of the complexities when deciding how to pass on the vacation house to the next generation. Other things to consider are how the property will be owned. Should the vacation house be held in trust, a business entity, or outright. It is important to carefully consider the various options to make sure that you are selecting the best plan for your family.
Additionally, where one of the owners of the shore home is at risk of needing long-term care, there is also the consideration of asset protection planning for Medicaid. If you as the owner of the property would need to go into a nursing home and apply for Medicaid, the vacation property would be a countable resource. As a countable resource the property would most likely need to be sold to pay for care. Therefore, one option to consider is the transfer of the vacation property to a Medicaid Asset Protection Trust. Before explaining how this trust works, it is important to know that when determining Medicaid eligibility for nursing home care, the primary residence is generally exempt, however, second homes are not.
A Medicaid Asset Protection Trust is an irrevocable trust created for the purpose of protecting assets from being countable when qualifying for Medicaid for long-term care supports and services. A trust is a legal entity created by the “grantor” under which one person — the “trustee” — holds legal title to property for the benefit of others — the “beneficiaries.” The trustee must follow the rules provided in the trust instrument by the grantor. You can pick who your trustee is, and often a child or trusted relative will act in this role. Typically, upon the death of the grantor, the trust terminates, and the principal of the trust is paid to the beneficiaries. You can also decide to have the trust continue upon the death of the grantor.
The transfer of your shore home to the Medicaid Asset Protection Trust is still subject to the five-year look-back period. If Medicaid is needed prior to the expiration of five years from the transfer of the property to the trust, you will be ineligible for Medicaid for a period of time known as the penalty period. The penalty period is determined by dividing the amount transferred by what Medicaid determines to be the average private pay cost of a nursing home in Pennsylvania.
The Medicaid Asset Protection Trust is a valuable option to protect your shore house from the cost of long-term care and to ensure that the property stays in the family for years to come. It is important to consult with an elder law attorney to make sure that the Medicaid Asset Protection Trust is the right fit for your situation.
The legal advice in this column is general in nature, consult your attorney for advice to fit your particular situation.
Rebecca A. Hobbs, Esquire is licensed to practice in the Commonwealth of Pennsylvania and is certified as an Elder Law Attorney by the National Elder Law Foundation as authorized by the Pennsylvania Supreme Court. She is a principal of the law firm of O’Donnell, Weiss & Mattei, P.C., 41 High Street, Pottstown, and 347 Bridge Street, Suite 200, Phoenixville,610-323-2800, www. owmlaw.com. You can reach Ms. Hobbs at [email protected]
