Northville Seniors Real Estate Specialist, Tracy Wick had an opportunity to interview estate planning attorney, Christopher Berry about real estate mistakes seniors and their family should avoid.
Christopher Berry explains that real estate is one of the most mismanaged assets he sees. And when it comes to real estate, there are 3 common mistakes or missed opportunities he sees daily when working with clients for their estate planning needs.
Seniors Real Estate Mistake #1: Allowing the Estate to Enter Probate
The first mistake is allowing an estate to go to probate which only costs family members time, money and frustration. Probate can be completely avoided by designating a beneficiary and adding their name to the property deed.
“If you are a single individual and the only person listed on the deed, when you pass away, the real estate would end up going into probate. Most people want to avoid probate because it is costly, time consuming and public. On average, 3-5% of assets that end up in probate get eaten up in costs, whether they are filing fees, inventory fees or attorney fees. Along the same lines, with a married couple, if both spouses were to pass away (say a car accident), then the real estate would end up going to probate,” says Christopher Berry.
Seniors Real Estate Mistake #2: Deeding the Property Directly to a Revocable Living Trust
A revocable living trust is an estate planning option allowing you to determine who will get your property when you pass away. Revocable living trusts are “living” because you make them during your lifetime.
Christopher Berry explains that a revocable living trust does not offer any asset protection and if a married couple decides to deed a piece of real estate to a revocable living trust, this could have devastating asset protection results.
“With a married couple, they have what is called tenancy by the entireties, a form of joint ownership only available to married couples, where if one spouse is sued, the house remains protected. By deeding the property directly to a revocable living trust, you’ve destroyed that asset protection that was afforded by the state of Michigan. Additionally, by deeding the property directly to a revocable living trust, you may have made it more difficult to refinance or sell the house,” says Berry.
Christopher also indicates that some title companies will not deal with property in a trust and would want you to deed the property out of the trust.
Seniors Real Estate Mistake #3: Failing to Use an Asset Trust
Another mistake or missed opportunity is not considering using an asset protection trust (like a Castle Trust) as a way to protect against lawsuits or the devastating cost of long-term care.
“A Castle Trust is a type of trust that avoids probate, controls the distribution upon death and builds in asset protection while alive. A good planning idea would be to set up the asset protection trust, deed the real estate into the trust, then it is protected from lawsuits and starts a five year race, where if you can make it five years before you need a nursing home, then the home would be protected from the devastating cost of long-term care and the nursing home/Medicaid spend-down,” Berry explains.
Although Medicaid can help pay for long-term care, an individual can only have a total of $2,000 of countable assets to qualify. Also, Medicaid reviews the past five years to see if any money or assets have been moved around, and if so, you will be penalized.
“By moving the real estate into the trust,” Berry explains, “it starts the Medicaid five year clock and now you would have the option to keep the house protected from estate recovery upon death and also have the flexibility to sell your house with the proceeds of the sale remaining protected inside of the Castle Trust. This is very different than a revocable living trust.”
Looking for More Information on How to Avoid Real Estate Mistakes?
If you want more information on real estate mistakes and how to avoid them, feel free to attend one of Christopher Berry’s free weekly workshops in Bloomfield Hills, Brighton, Novi, Livonia, or Ann Arbor by registering at: estateworkshop.com.
About Northville Seniors Real Estate Agent, Tracy Wick
Tracy Wick is a Seniors Real Estate Specialist in Northville, Michigan. The SRES designation is awarded only to REALTORS® who have completed specific educational courses on how to guide seniors and their families with their real estate decisions.
With 25 years of experience as real estate consultant for both buyers and sellers, Tracy has the expertise to help seniors who are downsizing to prepare their home for the market, as well as assist them with finding the best property for aging in place and enjoying their retirement years.