Using a Life Estate in an Estate Plan

[misterbreeze]

My question involves estate planning in the state of: South Carolina

Regarding a Life Estate, my elderly mother owns a home outright and would like to remove her name from the deed for Estate Planning purposes. She plans on living in the property for the duration.
Which would be a better plan?

Her being the "grantor" of the Life Estate, or Quit Claim the property to me and I in turn set up a Life Estate and become the "grantor" of a Life Estate.

One of the benefits in doing this is she still will receive her Homestead Credit for property taxes.

Thank you.

[flyingron]

It's extremely ill-advised for both the elderly and their heirs to give away the property prior to death.
A life state is not really a negotiable commodity. It bars her from obtaining a reverse mortgage if that would become necessary. It makes her ineligible for medicaid if that is necessary in the next ten years. There are adverse tax implications for all parties.

Gutting the estate while the person is still living is not estate planning. I would recommend you talk to a proper elder care/estate planner.

Your proposed wording is WRONG. She would grant the property to you reserving the life estate.

[Mr. Knowitall]

A big part of the issue here is Medicaid and disability planning, and that's something that should be discussed with an estate planning lawyer. Mom can reserve maximum flexibility for herself with a living trust that contains the home - it would convey the home as she wishes upon her death, but wouldn't tie her hands in relation to financing or moving if she decides to do so. Conveying the house for value transforms an asset that would not have to be spent down for Medicare eligibility into one that does; conveying the house for less than value creates an opportunity for the estate to pursue the house if the transaction occurs during the look back period. When attempting to recover Medicare expenditures, the trend appears to be for states to look at retained life estates as if the bulk of the value of the property remains with the life tenant - and states are implementing that type of law without grandfathering in existing transfers. While inherited real estate gets the beneficiary a step up in basis, the basis in a gift is that of the giver, so making a gift of property can significantly increase the recipient's tax exposure.